Rent-A-Center Stock Rebounds Following News of Buyout
Taylor Williams June 21, 2018
The number of stores that Rent-A-Center will close has not yet been announced. However, the acquiring party, Vintage Capital Management, has declared its intent to take the company private.
PLANO, TEXAS — After announcing on Monday, June 18, it had entered into an agreement to be acquired by Vintage Capital Management, Rent-A-Center Inc. (NASDAQ/NGS: RCII) has seen its stock price increase steadily throughout the week.
The company’s stock price opened at $14.78 per share on Thursday, June 21. This figure represents a nearly 23 percent increase in the span of just one week, but remains a far cry from the peak price of $40 per share in summer 2013.
Vintage Capital agreed to acquire Rent-A-Center for $15 per share in a transaction that is valued at approximately $1.4 billion and which will take the Plano-based retailer private. The deal is expected to close before year’s end. The price represents a premium of approximately 49 percent over Rent-A-Center’s closing stock price of $10.07 per share on Oct. 30, 2017.
According to one retail analyst, Rent-A-Center’s struggles stemmed from several factors, including a high number of new competitors in the home goods sector and the lack of financial resources to establish robust online sales.
“Rent-A-Center is an interesting case because it kind of bleeds into that personal services category, yet it’s not especially resistant to e-commerce because of the physical goods category,” says Jeff Green, a partner at Hoffman Strategy Group. “More people are able to buy than rent in this economy, and Rent-A-Center just didn’t have the cash to put together an online presence.”
Green adds that the American retail market, both online and brick-and-mortar, is currently flooded with inexpensive furniture options. Thus, during a strong economic cycle, there simply isn’t much incentive to rent home goods.
As a result of these factors, not to mention overall declining sales, Rent-A-Center’s decline was seen coming for some time. According to Yahoo Finance, the company’s chief competitor, Aaron’s, posted 25 percent more revenue than Rent-A-Center in 2017. This growth enabled the market capitalization of Aaron’s to swell to about $3.15 billion, roughly four times that of Rent-A-Center.
The buyout and quick rebound in stock price indicates that investors have confidence in Vintage Capital’s ability to salvage the brand by taking it private. Some store closures are surely imminent, but according to Green, the downsizing may hurt landlords more than the retailer itself.
“Rent-A-Center had unfortunately become an anchor for Class B and C centers, and not the kind of tenant featured in major power centers,” he says. “For property owners of these centers, Rent-A-Center’s closures may be an especially big hit.”
— Taylor Williams