Marcato Joins Activist Push for Rent-A-Center Sale

  • McGuire’s firm discloses new 4.9 percent stake in letter
  • Marcato backs Engaged’s call for full review including sale

Rent-A-Center Inc., the rent-to-own electronics and furniture group facing a proxy fight with activist Engaged Capital, is under heightening activist pressure to sell itself as Marcato Capital Management joins the fray.

“We strongly urge the board to immediately commence a process to review all strategic alternatives including a sale of the entire company,” Marcato, the activist firm run by Mick McGuire, wrote in a letter Monday to Rent-A-Center’s board.

Marcato amassed a new 4.9 percent stake in Rent-A-Center and said it will vote for Engaged’s dissident board nominees if the company pursues turnaround efforts without hiring an investment bank to explore sale opportunities.

Shares of the Plano, Texas-based company closed up 7.2 percent at $10.29 on Monday, giving it a market capitalization of about $550 million. The stock had fallen 32 percent in the 12 months ended last week.

Rent-A-Center earlier Monday announced a plan to improve operations and restore profitability, and said it was making its interim chief executive officer permanent. Marcato said the steps fail to address whether the company will explore a sale.

Fiduciary Duty

“A sale very likely offers the highest possible risk-adjusted return for shareholders,” Marcato wrote, because the company “is likely to be valued much more highly by private market participants than by public market investors.”

Engaged, the activist hedge fund founded by Glenn Welling, has amassed 20.5 percent of Rent-A Center in stock and options. Since February it’s publicly urged its target to review strategic alternatives with a sale as the “most logical outcome,” and threatened a proxy fight. Engaged first made an activist shareholder filing related to Rent-A-Center on Jan. 30.

“Rent-a-Center’s strategic plan was developed and approved by the same board that has failed shareholders miserably, overseeing an approximately 75 percent decline in the value of the shares over the last two years,” Welling said Monday.

“Having a strategic plan does not absolve the board of their fiduciary duty to shareholders, which includes understanding the value of all strategic alternatives, including a sale of the entire company, before embarking on the high-risk path laid out today,” Welling added.

Rent-A-Center adopted a poison pill on March 28, to be triggered if a shareholder amasses or tenders for more than 15 percent of its stock. The company was under interim management after its CEO left in January and its chief financial officer exited the previous month.

Company Initiatives

Chairman and CEO Mark Speese, who’s a co-founder of Rent-A-Center, is one of three directors up for re-election at the company’s next annual meeting, alongside Len Roberts and Jeff Jackson. Engaged has nominated five dissident director candidates, including Rent-A-Center’s former chief operating officer Mitch Fadel and Ken Butler, the former COO of Aaron’s Inc., Rent-A-Center’s bigger competitor.

“As a founder, I look forward to continuing the great work underway across Rent-A-Center in order to return the company to a position of strength,” Speese said Monday.

Rent-A-Center said it’s working on several initiatives, including adjusting its pricing strategy so that more renters buy items, increasing its offerings of higher-end products, improving customer service by reducing employee turnover, and expanding e-commerce offerings and mobile applications.

“We are confident that executing the initiatives announced today will drive enhanced stockholder value,” the company said in an emailed statement Monday. “The board takes its fiduciary responsibilities seriously and will continue to evaluate opportunities with the assistance of its independent financial and legal advisers.”

In 2014, Aaron’s faced pressure from activist Starboard Value and private equity firm Vintage Capital Management, and it acquired lease-to-own company Progressive Finance Holdings LLC for about $700 million. Progressive competes with Rent-A-Center’s finance unit Acceptance Now. Vintage Capital owns smaller competitor Buddy’s Home Furnishings.

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