Why Shares of Rent-A-Center Inc. Jumped Today

What happened

Shares of Rent-A-Center Inc. (NASDAQ: RCII) surged on Tuesday after Vintage Capital Management increased its offer to acquire the company. Rent-A-Center disclosed on Monday that it had received an offer from one of the companies involved in its strategic review process soon after that process was ended. Rent-A-Center stock was up about 15% at 12:35 p.m. EDT.

So what

Vintage Capital is now offering to acquire Rent-A-Center for $14 per share. This offer comes one day after Rent-A-Center ended its strategic review due to a lack of satisfactory offers. Vintage Capital had previously offered to buy the company for $15 per share in July 2017, but it lowered its bid to $13 per share last November.

Image source: Rent-A-Center.

In a press release on Monday, before Vintage Capital’s latest bid, Rent-A-Center said that “the Board would carefully consider any credible proposal with the assistance of its outside financial and legal advisors to determine whether a proposal would ultimately maximize stockholder value.”

Rent-A-Center’s revenue has stagnated over the past decade, with 2017 sales slightly below 2008 sales. Margins have eroded as well, with the double-digit operating margins of the past giving way to a small operating loss last year.

Now what

Shares of Rent-A-Center have tumbled 69% since peaking in late 2013, a result of deteriorating fundamentals. The company’s strategic plan involves cost-cutting, working capital optimization, franchising locations, and debt reductions.

The $14 per share offer from Vintage Capital is much lower than where the stock traded a few years ago, but it may be the best option for the company.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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