Why Rent-A-Center Inc. Stock Popped Today

What happened

Shares of rent-to-own retailer Rent-A-Center Inc. (NASDAQ: RCII) soared on Monday after the company agreed to be acquired for $15 per share. This comes less than a week after Rent-A-Center received a lower buyout offer following the completion of its strategic review. The stock was up about 22.2% at 11:30 a.m. EDT.

So what

Rent-A-Center has agreed to be acquired by Vintage Rodeo Parent LLC, an affiliate of Vintage Capital Management LLC, for $15 per share. The total transaction value is $1.365 billion, including debt. Vintage Capital offered $14 per share last week. That followed multiple offers in 2017, ranging from $13 to $15.

Image source: Rent-A-Center.

Rent-A-Center is throwing in the towel as a public company after a long period of slumping margins and a declining stock price. The $15 offer price is roughly 49% higher than the price last Oct. 30, the day before the company began its strategic review. But it’s down more than 60% from its multiyear high, reached in late 2013.

Rent-A-Center CEO Mitch Fadel sees this transaction as the best course of action: “The Rent-A-Center board, having just completed a comprehensive review of strategic and financial alternatives in consultation with outside legal and financial advisers, unanimously supports this transaction and is confident it maximizes value for stockholders while delivering a significant and immediate cash premium.”

Now what

Vintage Capital is also the controlling shareholder in Buddy’s Home Furnishings, another rent-to-own retailer. Vintage Capital founder Brian Kahn sees the combination of Buddy’s and Rent-A-Center as “a compelling opportunity to utilize our resources and expertise to enhance value and create a leader in the rent-to-own industry.”

Whether Vintage Capital will be able to turn around Rent-A-Center, which posted a revenue decline and a net loss last year, is an open question. The deal is expected to close by the end of 2018.

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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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