Rent-A-Center Loses Three Board Seats to Activist EngagedBy
Welling’s activist campaign wins all three seats sought
Engaged pushed board for strategic review, urging sale
Rent-A-Center Inc. lost its proxy fight with Engaged Capital as shareholders voted for all three dissident directors nominated by the activist investor, ousting three incumbents from the board including the company’s chief executive officer.
Shareholders at the rent-to-own electronics and furniture group’s annual meeting Thursday backed Engaged’s candidates Mitch Fadel, Rent-A-Center’s former chief operating officer; Jeffrey Brown, a private equity investor; and Christopher Hetrick, a principal at Engaged, according to preliminary results of a vote released by both the company and the activist hedge fund.
They will replace incumbent board Chairman Mark Speese, who’s CEO and a co-founder of the company, and directors Len Roberts and Jeff Jackson. Speese will continue to serve as CEO, and the board appointed current lead director Steven Pepper as its new chairman, Rent-A-Center said in its statement.
Rent-A-Center shares rose 0.4 percent to $13.19 at 10:39 a.m. in New York, giving it a market capitalization of about $705 million.
Engaged, founded by Glenn Welling, has amassed 20.5 percent of the Plano, Texas-based company in stock and options. Since February it’s publicly urged its target to review strategic alternatives with a sale as the “most logical outcome.”
“The board must adopt a strategy that creates the optimal risk-adjusted outcome for all stockholders after all options are thoroughly explored,” Welling said in Engaged’s statement Thursday. “While it is unfortunate that we had to pursue a proxy contest to provide a voice for stockholders, we believe that the result of the meeting delivered a clear and unambiguous message to the board.”
A second activist firm, Mick McGuire’s Marcato Capital Management, disclosed its stake in April and urged a sale, saying it would back Engaged if Rent-A-Center pursues turnaround efforts without hiring an investment bank to explore alternatives.
“The entire Rent-A-Center board looks forward to working collaboratively with our new directors to restore long-term growth, drive improved profitability and enhance value for all stockholders,” Chairman Pepper said in the company statement, thanking the outgoing directors for their service.
“In my capacity as CEO, I remain as dedicated as ever to driving growth and helping Rent-A-Center achieve its full potential on behalf of all of our stakeholders,” CEO Speese said in the statement.
Rent-A-Center in April announced a plan to improve operations and restore profitability, and said it was making its interim CEO permanent. The company was under temporary management after its chief financial officer left in December and its CEO departed the following month.
It adopted a poison pill on March 28 that would be triggered if a shareholder amasses or tenders more than 15 percent of its stock.
The company has 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.
Rent-A-Center’s finance unit Acceptance Now competes with Progressive Finance Holdings LLC, a lease-to-own company acquired by Aaron’s Inc. for about $700 million after it faced pressure in 2014 from activist Starboard Value and private equity firm Vintage Capital Management. Vintage Capital also owns Buddy’s Home Furnishings, a smaller competitor.
Welling, a former partner at Relational Investors, formed Newport Beach, California-based Engaged with other Relational managers in 2012 and with the backing of Grosvenor Capital Management. McGuire founded Marcato in 2010 with startup capital from Blackstone Group LP after working at Bill Ackman’s Pershing Square Capital Management.