Author Topic: RCII - Rent-A-Center  (Read 15809 times)

writser

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RCII - Rent-A-Center
« on: November 03, 2017, 09:40:44 AM »
Anybody familiar with this company?

Earlier this year, an activist with a 20% position (Engaged capital, managed to sell Outerwall in 2016), backed by ISS, won three board seats. The founder and chairman, Mark Speese, was removed from the board (but still is CEO and owns ~2% of s/o). This summer the company turned down multiple takeover bids. A few days ago, on October, 30, the new board decided to "explore strategic and financial alternatives". The previously elected chairman (another long-time board member) resigned from the board because he disagreed with the new strategy. Three days later a new $13 bid appears from a ~6% owner.

Activists own ~30% of the stock and now control the board. Alan Mecham also holds a 5% stake. There's a $13 bid on the table and this summer even higher numbers were offered. I'm hardly familiar with this business. It doesn't seem spectacular and the balance sheet is quite leveraged. However, based on what the activists are doing it seems extremely likely to me that this will be sold for ~$12 - $16 somewhere in 2018. You can currently buy for $11.

I bought a few shares, am thinking about buying more. If anyone can tell me why that would be a horrible idea then I'd love to hear it.
« Last Edit: November 03, 2017, 09:45:00 AM by writser »
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valuedontlie

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Re: RCII - Rent-A-Center
« Reply #1 on: November 03, 2017, 09:52:09 AM »
I had previously owned a call spread on this name around the time the activist(s) first got involved... Have started to take another look...

Here is what a sell-side analyst said about the recent offer:

Vintage Capital’s offer likely has financing
problems, as well as a clause that is likely a “non-starter” for
RCII.

  * Questions how Vintage can finance a deal with already high
    leverage and recent spate of retail bankruptcies
  * Vintage Capital
    provision that RCII not release propriety info to future
    competitors is a “non-starter” as the company has a fiduciary
    duty to disclose such data to potential bidders

JayGatsby

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Re: RCII - Rent-A-Center
« Reply #2 on: November 03, 2017, 04:13:08 PM »
I don't know much about them, but was in CONN for a bit and have looked at CONN on and off again since then. Have looked at RCII a few times briefly, but not enough that you should take my opinion as worth anything. CONN had a really good business for a while but then loosened credit, defaults increased, and they never really got their mojo back. It's a sketchy industry in my opinion that's not all that much better than payday lending. They basically sell furniture to people that can't afford furniture and charge them huge financing costs for that service. CONN broke their biz into two segments: retail and lending. The retail business would generate huge margins selling the products. Lending would break even, but that was kind of fine because as long as it broke even the model worked. At one point CONN had a huge amount of these receivables on their books that were all internally financed (no matching liability). Lastly, the market for this sort of stuff has expanded a lot, and either CONN or RCII now have kiosks in Best Buy if I remember right. The industry should be a bit more immune to the internet than other retailers because the whole reason people shop at these stores is because they don't have the cash to spend elsewhere.

That may be totally unhelpful, as its been a while since I looked at it and I didn't look at it very deeply. Industry has its fair share of challenges though. Long story short, I'd dig into the fundamentals a bit on this one before trying to arb the sale process.

writser

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Re: RCII - Rent-A-Center
« Reply #3 on: November 06, 2017, 11:45:21 AM »
Both: thanks for your replies.

With regards to Vintage Capital: yeah, they seem to be a smallish shop, financing could be difficult. I don't know their AUM but in 2014 they owned ~7m shares of AAN (a similar lease-to-own company) worth around $200m and they offered to take private the company in a ~$2.1b deal. Seems like the offer was pulled after AAN made a large acquisition. Their current public holdings aren't that large, hard to infer anything.They already own Buddy's Rents, the third largest lease-to-own franchise in the US (according to themselves, I am not familiar with the company but they seem to have ~300 stores) so a deal seems to make sense at first glance. But agreed, not the safest buyer. However, this summer both HIG capital and Lone Star Funds were also interested in buying the company at a premium according to Reuters - much bigger fish.

With regards to the exclusivity agreement: I don't read too much into that. Makes sense from Vintage Capital's perspective but the board has a big incentive to make a good deal (as half the board represents a 20% owner) and I expect them to make a somewhat rational decision: they can gauge interest from other parties and then decide how to handle the Vintage Capital proposal.

A tidbit from the latest conference call:
Quote
Anthony Chukumba - Loop Capital Markets LLC

I just had a question on the CFO search. You're now coming up close to a year without a CFO and no offense Maureen, you're doing a great job, but just I was wondering where you are in that process, and whether some of the sort of disagreements or issues that the board has exceeded that process at all? Thank you.

Mark E. Speese - Rent-A-Center, Inc.

Well, as I mentioned last time, I just started the search for, I think, everyone knows why it wasn't started initially, in light of everything that's taken place up to that point, and suffice it to say in light of the news that we just announced, don't expect me to be doing much at the moment either. And to your point, Maureen has done a wonderful job and I'm thankful for that, and she continues to do so. So, I got no issue with it, and I probably won't have anything to say on it for anytime soon either.

Doesn't really sound like he expects the strategic review ends with a small tender offer and then business as usual.

I'm not sure about this one. The Vintage Capital bit doesn't seem super firm, the business looks mediocre and is heavily indebted. On the other hand, if this was WEB buying the next Amazon it wouldn't trade at $10 with a $13 bid on the table. I'm probably keeping this a small position and don't mind trading it opportunistically.
« Last Edit: November 06, 2017, 11:49:51 AM by writser »
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writser

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Re: RCII - Rent-A-Center
« Reply #4 on: November 08, 2017, 08:33:47 AM »
https://www.sec.gov/Archives/edgar/data/933036/000093303617000072/0000933036-17-000072-index.htm

Quote
As stated in the Company’s October 30, 2017 press release, the Board remains committed to exploring a broad range of strategic and financial alternatives and ensuring a fair and impartial process to all parties that have expressed an interest in the Company to date, or that may do so in the future. The Board appreciates Vintage’s interest in the Company and looks forward to additional dialogue. Given the early stage of the strategic review and the level of inbound interest from other parties, we do not believe it is in the best interests of our stockholders to enter into an exclusivity agreement with Vintage at this time.
« Last Edit: November 08, 2017, 11:27:54 AM by writser »
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writser

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Re: RCII - Rent-A-Center
« Reply #5 on: November 10, 2017, 06:48:24 AM »
I don't see any news apart from some broker coverage but stock is up ~8% today and ~15% over the past few days. Very volatile. I sold out at ~$12 for a quick profit. That seems like a somewhat fair price with the only concrete buyer being somewhat questionable and making a preliminary offer of $13. Already down to $11 again .. Better to be lucky than good I suppose.
« Last Edit: November 10, 2017, 06:53:11 AM by writser »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

writser

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Re: RCII - Rent-A-Center
« Reply #6 on: November 24, 2017, 08:19:51 AM »
I've been flipping some shares around. Bought a somewhat larger position again in todays dip.
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writser

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Re: RCII - Rent-A-Center
« Reply #7 on: December 04, 2017, 08:32:19 AM »
Up to $12 again on no news / low volume. Sold. This stock is turning me into a day trader.
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writser

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Re: RCII - Rent-A-Center
« Reply #8 on: December 14, 2017, 07:18:43 AM »
Bought back some shares. Quite some volume today and a decent price swing. I see no news - brokerage report or something?
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johnny

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Re: RCII - Rent-A-Center
« Reply #9 on: December 14, 2017, 07:29:35 AM »
What's your current theory for where those summer bids went?