Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: writser on November 03, 2017, 09:40:44 AM

Title: RCII - Rent-A-Center
Post by: writser 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 (https://www.reuters.com/article/us-rent-a-center-m-a/rent-a-center-shunned-takeover-interest-from-hig-lone-star-sources-idUSKBN1A92IV) 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 (http://archive.fast-edgar.com//20171103/ALA2PQ2CZZ22VZZK22JQ2ZZHFTGK2B22Z292/) 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.
Title: Re: RCII - Rent-A-Center
Post by: valuedontlie 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
Title: Re: RCII - Rent-A-Center
Post by: JayGatsby 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.
Title: Re: RCII - Rent-A-Center
Post by: writser 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 (https://www.woodworkingnetwork.com/wood-market-trends/woodworking-industry-trends-press-releases/Vintage-Capital-Pulls-Offer-on-Aarons-Buyout-255793161.html) 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 (http://www.buddyrents.com/about-buddys/), 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.
Title: Re: RCII - Rent-A-Center
Post by: writser 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.
Title: Re: RCII - Rent-A-Center
Post by: writser 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.
Title: Re: RCII - Rent-A-Center
Post by: writser on November 24, 2017, 08:19:51 AM
I've been flipping some shares around. Bought a somewhat larger position again in todays dip.
Title: Re: RCII - Rent-A-Center
Post by: writser 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.
Title: Re: RCII - Rent-A-Center
Post by: writser 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?
Title: Re: RCII - Rent-A-Center
Post by: johnny on December 14, 2017, 07:29:35 AM
What's your current theory for where those summer bids went?
Title: Re: RCII - Rent-A-Center
Post by: Jurgis on December 14, 2017, 07:42:29 AM
Bought back some shares. Quite some volume today and a decent price swing. I see no news - brokerage report or something?

They appointed some guy as chairman of board:

Quote
Rent-A-Center Names J.V. Lentell as Board Chairman
BY MT Newswires
— 5:06 PM ET 12/12/2017

05:06 PM EST, 12/12/2017 (MT Newswires) -- Rent-A-Center (RCII) said in a regulatory filing late Tuesday that its board of directors appointed J.V. Lentell as chairman.

Lentell joined the board in 1995 and was lead director from April 2009 until January 2014.
Title: Re: RCII - Rent-A-Center
Post by: writser on December 15, 2017, 12:35:12 PM
They appointed some guy as chairman of board:
I saw, but I don't read too much into that.

What's your current theory for where those summer bids went?
Well, admittedly it's a weak theory but one bid is still on the table and as far as the others are concerned: the company, with the new activist board members, declined an exclusivity agreement with Vintage Capital and is doing a strategic review, probably trying to reach out to potential buyers. Could take a while to reach a conclusion. In the meantime I don't expect the company to churn out press releases. Buyers were interested last summer, doesn't seem crazy to assume they still are. We'll see what happens.

Given the prices offered last summer I think $10 is a decent entry point for a small gamble and $12 a decent exit.
Title: Re: RCII - Rent-A-Center
Post by: writser on December 21, 2017, 03:10:39 PM
I sold after todays open. RCII was up significantly the past few days and I didn't exactly think it was good news they are declassifying (https://www.sec.gov/Archives/edgar/data/933036/000119312517376420/d499957dex991.htm) the board. Sure, from a corporate governance standpoint it is great but I just want the company to strike a deal and if they start to issue press releases that, from June 2019 on, directors will stand for elections annually, then that doesn't exactly suggest to me that the company will be sold in a few weeks.

Bought back a tiny position after the stock drifted down 5% intraday but from now on I'll probably be slightly more conservative. Managed to flip my position a few times. Better lucky than smart I guess ..
Title: Re: RCII - Rent-A-Center
Post by: Foreign Tuffett on January 02, 2018, 09:41:09 AM
Stock is down on news that the CEO is resigning effective immediately. Not a shock since he was recently voted off the board and was criticized by the activists who are now in the driver's seat.

http://investor.rentacenter.com/phoenix.zhtml?c=90764&p=irol-newsArticle&ID=2324373 (http://investor.rentacenter.com/phoenix.zhtml?c=90764&p=irol-newsArticle&ID=2324373)
Title: Re: RCII - Rent-A-Center
Post by: MrB on January 04, 2018, 12:52:32 AM
I sold after todays open. RCII was up significantly the past few days and I didn't exactly think it was good news they are declassifying (https://www.sec.gov/Archives/edgar/data/933036/000119312517376420/d499957dex991.htm) the board. Sure, from a corporate governance standpoint it is great but I just want the company to strike a deal and if they start to issue press releases that, from June 2019 on, directors will stand for elections annually, then that doesn't exactly suggest to me that the company will be sold in a few weeks.

Bought back a tiny position after the stock drifted down 5% intraday but from now on I'll probably be slightly more conservative. Managed to flip my position a few times. Better lucky than smart I guess ..

The board is the obstacle to a deal being struck and the fact this is a staggered board lies at the heart of the problem. Declassifying it is huge, although a bit late, because it is almost certain that Engaged will achieve a majority on the board by June/next AGM anyway. 
Title: Re: RCII - Rent-A-Center
Post by: MrB on January 04, 2018, 01:04:57 AM
Stock is down on news that the CEO is resigning effective immediately. Not a shock since he was recently voted off the board and was criticized by the activists who are now in the driver's seat.

http://investor.rentacenter.com/phoenix.zhtml?c=90764&p=irol-newsArticle&ID=2324373 (http://investor.rentacenter.com/phoenix.zhtml?c=90764&p=irol-newsArticle&ID=2324373)
Mark's influence over the board is most likely the single most important reason why Engaged has been unable to affect their proposed organisational/strategic changes, which include the pursuit of a sale. Fadel is Engaged's man and being a previous COO means Engaged's proposals should be implemented effectively and quickly. Whether Engaged's proposed changes will add value is another matter, but Engaged has everything they've been pushing for now. The CEO change is a big deal.

If you believe the story then today's price at about 12% more than Engaged's average cost (they started buying in Oct 2016) seems like a good entry point.
Title: Re: RCII - Rent-A-Center
Post by: kab60 on January 04, 2018, 02:00:13 AM
Sooo... Apart from buyout speculation (which does seem like the eventual outcome), what do people actually think about the business, the valuation and it's progress during the last year or so? It seems like a lot of the problems were self-inflicted with misaligned incentives and much too high staff turnover. Things that should be fixable.
Title: Re: RCII - Rent-A-Center
Post by: MrB on January 04, 2018, 02:24:21 AM
Sooo... Apart from buyout speculation (which does seem like the eventual outcome), what do people actually think about the business, the valuation and it's progress during the last year or so? It seems like a lot of the problems were self-inflicted with misaligned incentives and much too high staff turnover. Things that should be fixable.
Correct, according to Engaged. This presentation lays it out
http://www.engagedcapital.com/press/RCII-Presentation.pdf
Supplement
http://www.engagedcapital.com/press/Supplemental-Presentation-to-Rent-A-Center-Stockholders.pdf

The back and forth between Engaged and RCII as well as between RCII/Engaged and the SEC is worth a read and can be found in the RCII filings.
Title: Re: RCII - Rent-A-Center
Post by: writser on January 04, 2018, 03:52:21 AM
MrB - thanks for your insights.
Title: Re: RCII - Rent-A-Center
Post by: Bluffy on January 04, 2018, 03:55:09 AM
I am still thinking about the impact the new tax bill will have. In this case I am not sure how I could quantify the future impact of the immediate expensing provision has to for example a strategic acquirer.
Am I correct in my assumption that in RCIIs case they don't have immediate GAAP profitability so they cannot reduce their taxes further into negative territory with the immediate expensing of for example their inventory?
Any thoughts are appreciated!
Title: Re: RCII - Rent-A-Center
Post by: MrB on January 04, 2018, 04:34:15 AM
I am still thinking about the impact the new tax bill will have. In this case I am not sure how I could quantify the future impact of the immediate expensing provision has to for example a strategic acquirer.
Am I correct in my assumption that in RCIIs case they don't have immediate GAAP profitability so they cannot reduce their taxes further into negative territory with the immediate expensing of for example their inventory?
Any thoughts are appreciated!
Not an expert, but I don't believe "immediate expensing" can be applied to inventory. http://ww2.cfo.com/tax/2017/12/cfos-expect-new-tax-bill/

Title: Re: RCII - Rent-A-Center
Post by: Bluffy on January 04, 2018, 05:04:13 AM
I am still thinking about the impact the new tax bill will have. In this case I am not sure how I could quantify the future impact of the immediate expensing provision has to for example a strategic acquirer.
Am I correct in my assumption that in RCIIs case they don't have immediate GAAP profitability so they cannot reduce their taxes further into negative territory with the immediate expensing of for example their inventory?
Any thoughts are appreciated!
Not an expert, but I don't believe "immediate expensing" can be applied to inventory. http://ww2.cfo.com/tax/2017/12/cfos-expect-new-tax-bill/
Thank you for your quick response! I started to dig into RCII's story and found https://seekingalpha.com/news/3319204-new-tax-rule-benefit-aarons-rent-center (https://seekingalpha.com/news/3319204-new-tax-rule-benefit-aarons-rent-center). Still trying to wrap my head around the tax bill and all its implications.

On another note, thank you MrB for all your very well thought out posts and the educational links you provide! Learned a lot already with your help especially by reading your posts in the DVA thread!
Title: Re: RCII - Rent-A-Center
Post by: MrB on January 04, 2018, 09:00:27 AM
I am still thinking about the impact the new tax bill will have. In this case I am not sure how I could quantify the future impact of the immediate expensing provision has to for example a strategic acquirer.
Am I correct in my assumption that in RCIIs case they don't have immediate GAAP profitability so they cannot reduce their taxes further into negative territory with the immediate expensing of for example their inventory?
Any thoughts are appreciated!
Not an expert, but I don't believe "immediate expensing" can be applied to inventory. http://ww2.cfo.com/tax/2017/12/cfos-expect-new-tax-bill/
Thank you for your quick response! I started to dig into RCII's story and found https://seekingalpha.com/news/3319204-new-tax-rule-benefit-aarons-rent-center (https://seekingalpha.com/news/3319204-new-tax-rule-benefit-aarons-rent-center). Still trying to wrap my head around the tax bill and all its implications.

On another note, thank you MrB for all your very well thought out posts and the educational links you provide! Learned a lot already with your help especially by reading your posts in the DVA thread!
Thanks Bluffy. I learn from this board with everyone else as I'm now learning from you that my assumption seems to be incorrect that the rule will not affect inventory. It looks like it will.
Title: Re: RCII - Rent-A-Center
Post by: Foreign Tuffett on January 04, 2018, 10:59:46 AM
Sooo... Apart from buyout speculation (which does seem like the eventual outcome), what do people actually think about the business, the valuation and it's progress during the last year or so? It seems like a lot of the problems were self-inflicted with misaligned incentives and much too high staff turnover. Things that should be fixable.

I think the core Rent-A-Center stores generate strong (if fluctuating) free cash flows. These free cash flows have been obscured by wasteful capital allocation. For example the company bought back over $500 million in stock at an average price of $31 per share, and also spent a ton of money on a proprietary point-of-sale ("POS" is definitely the appropriate acronym in this case) system that has been problematic .

I thing I worry about is the performance of the company further deteriorating as a result of the revolving door that has apparently been installed in the C-Suite. 
Title: Re: RCII - Rent-A-Center
Post by: kab60 on January 05, 2018, 04:25:03 AM
Thanks for the quick and thoughtful responses. It's a pretty proven business model, so it should be fixable, but it's a bit hard to figure out the true economics and how much damage has been done. Still on the sideline even though I think it looks pretty attractive - especially since it should do okay in a recession if there ever is one. Do they need to replace their current POS or has it largely been fixed?
Title: Re: RCII - Rent-A-Center
Post by: MrB on January 05, 2018, 05:26:30 AM
Sooo... Apart from buyout speculation (which does seem like the eventual outcome), what do people actually think about the business, the valuation and it's progress during the last year or so? It seems like a lot of the problems were self-inflicted with misaligned incentives and much too high staff turnover. Things that should be fixable.

I think the core Rent-A-Center stores generate strong (if fluctuating) free cash flows. These free cash flows have been obscured by wasteful capital allocation. For example the company bought back over $500 million in stock at an average price of $31 per share, and also spent a ton of money on a proprietary point-of-sale ("POS" is definitely the appropriate acronym in this case) system that has been problematic .

I thing I worry about is the performance of the company further deteriorating as a result of the revolving door that has apparently been installed in the C-Suite.

If you look at Aaron's latest presentation http://media.corporate-ir.net/media_files/IROL/10/104698/AAN_3Q17_Investor_Relations_Deck_r.pdf then you will note on p.5 that the core business is declining and the top line is only growing because of Progressive/virtual (Anow equivalent). A good chunk of that is due to strategic shift from physical to online, but I think it is pretty established that the rent-to-own physical footprint is shrinking. It seems like tough nut to crack for a C-suite in disarray.
Title: Re: RCII - Rent-A-Center
Post by: kab60 on January 05, 2018, 05:32:46 AM
Good point. Not really actionable, but it might be worthwhile for you guys to know that there has been a sales process going on in Denmark since autumn 2017 where L'easy - a company much like rent-a-center - has been shopped without success so far.

L'easy is pretty well managed, so it's probably more a question of price since it hasn't been sold, but it means that at least two similar assets are on the sales block ATM. Lonestar has been mentioned as a potential acquirer of both I believe.
Title: Re: RCII - Rent-A-Center
Post by: MrB on January 22, 2018, 07:19:31 AM
Rent-A-Center, Vintage Capital sign standstill deal amid buyout talks
https://www.reuters.com/article/us-rent-a-center-m-a-vintage/rent-a-center-vintage-capital-sign-standstill-deal-amid-buyout-talks-idUSKBN1F82VC
Title: Re: RCII - Rent-A-Center
Post by: BeerBBQ on January 22, 2018, 07:23:47 AM
Do you think this is because they are the only bidder at table or do you think they have put a potential number on the table that is reasonable enough to have a more serious discussion?
Title: Re: RCII - Rent-A-Center
Post by: MrB on January 22, 2018, 01:35:04 PM
Do you think this is because they are the only bidder at table or do you think they have put a potential number on the table that is reasonable enough to have a more serious discussion?
Bait or stalker? Not sure what odds I'm putting on that, but 50/50 is a good starting point for me.
Title: Re: RCII - Rent-A-Center
Post by: Foreign Tuffett on February 05, 2018, 11:18:43 AM
RCII has had a brutal last couple of weeks. I've (luckily) stayed away, based on the idea that their management turnover and distraction doesn't bode well for their upcoming earnings.

Anyone think it's getting interesting here?


Also, this:

http://investor.rentacenter.com/phoenix.zhtml?c=90764&p=irol-newsArticle&ID=2330309 (http://investor.rentacenter.com/phoenix.zhtml?c=90764&p=irol-newsArticle&ID=2330309)
Title: Re: RCII - Rent-A-Center
Post by: MrB on February 05, 2018, 12:21:59 PM
Basically up to Engaged now. Their show.
Title: Re: RCII - Rent-A-Center
Post by: Foreign Tuffett on February 14, 2018, 06:44:11 AM
Allan Mecham (Arlington Value) bumped up his RCII position by almost 1/3 in Q4. That tiny incremental positive was enough to motivate me to get back into this falling knife at $9.21 at few minutes ago.



Title: Re: RCII - Rent-A-Center
Post by: MrB on February 14, 2018, 07:37:05 AM
Should I say welcome to Hotel California?
Title: Re: RCII - Rent-A-Center
Post by: Green King on February 14, 2018, 08:19:51 AM
Should I say welcome to Hotel California?

Lol
Title: Re: RCII - Rent-A-Center
Post by: Foreign Tuffett on February 21, 2018, 08:16:34 AM
Q4 results are out and, as I expected, they are poor. It doesn't look like the company is going to be sold off in the near term.

I think it's especially instructive to look at the "Rental Merchandise" figure. They have ~13% LESS owned merchandise than they did a year ago. Most (all?) of the free cash flow they are producing is from what amounts to a slow motion liquidation as they "eat their seed corn."   

The refranchising initiative reminds me of GNC a few years ago. I see it as basically a "we can't make our stores work so we will simply sell them off." It's worth a try I guess, but I don't expect it to work much better than it did for GNC unless they can mitigate SSS declines somehow.

I think what's going on is that the "virtual" solutions like AcceptanceNow and Aaron's Progressive Leasing are eating the core stores alive. John Doe no credit doesn't want to shop at Rent a Center for electronics when he can shop at Best Buy instead.   
Title: Re: RCII - Rent-A-Center
Post by: Foreign Tuffett on February 21, 2018, 08:25:28 AM
Also, consumer credit is very loose right now. This is bad for counter-cyclical RCII as it means that John Doe poor credit has financing available to him that he definitely wouldn't have had access to five or six years ago. This allows him to shop for furniture and electronics where he wants to, instead of being forced to resort to walking in RCII store. 
Title: Re: RCII - Rent-A-Center
Post by: MrB on February 21, 2018, 09:36:17 AM
FT I think it is worth noting that what they're doing is consistent with Engaged's original proposal e.g. stock selection is wrong and needs to be changed, AcceptanceNow is not working great, Mexico, etc. Worth a look. The link is somewhere in the thread and slide 66 is insightful in light of your comments.
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on March 08, 2018, 06:52:30 AM

Rent-A-Center in talks with possible buyers, cuts 250 jobs
https://www.reuters.com/article/us-rent-a-center-layoffs/rent-a-center-in-talks-with-possible-buyers-cuts-250-jobs-idUSKCN1GJ35U

Allan Mecham - Arlington Value is heavy in this name

Title: Re: RCII - Rent-A-Center
Post by: MrB on April 03, 2018, 09:33:44 AM
Rent-A-Center spikes on report (EDIT: RUMOUR) of upcoming deal
https://seekingalpha.com/news/3343354-rent-center-spikes-report-upcoming-deal
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on April 05, 2018, 11:01:49 AM
Cerberus Enters Fray for Rent-A-Center
https://www.thestreet.com/story/14546924/1/cerberus-enters-fray-for-rent-a-center-sources.html
Title: Re: RCII - Rent-A-Center
Post by: MrB on April 06, 2018, 04:27:12 AM
Cerberus Enters Fray for Rent-A-Center
https://www.thestreet.com/story/14546924/1/cerberus-enters-fray-for-rent-a-center-sources.html
Another rumour. Someone is playing those jungle drums hard.
Title: Re: RCII - Rent-A-Center
Post by: MrB on April 09, 2018, 07:39:52 AM
https://www.cnbc.com/2018/04/09/reuters-america-update-1-rent-a-center-expects-decision-on-buyout-bids-by-second-quarter.html

UPDATE 1-Rent-A-Center expects decision on buyout bids by second quarter
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on April 09, 2018, 08:20:32 AM
"the Company is raising its full year free cash flow guidance from at least $130 million to at least $170 million." 😍
Title: Re: RCII - Rent-A-Center
Post by: MrB on April 09, 2018, 09:30:30 AM
"the Company is raising its full year free cash flow guidance from at least $130 million to at least $170 million." 😍
http://investor.rentacenter.com/phoenix.zhtml?c=90764&p=irol-newsArticle&ID=2341581
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on April 09, 2018, 11:08:47 AM
I'm a buyer at this FCF multiple
Aaron's could be a bidder but the fundamentals might justify a higher bid than the last one ( $13 per share)

55% short interest!? Is that right?
Title: Re: RCII - Rent-A-Center
Post by: BeerBBQ on April 09, 2018, 12:27:01 PM
anyone have any thoughts on why the short interest is so high?
Title: Re: RCII - Rent-A-Center
Post by: MrB on April 10, 2018, 07:14:40 AM
anyone have any thoughts on why the short interest is so high?
Poorly run business in an industry that's being disintermediated going up against a well run competitor. I can see why someone would short it. The longs would likely generally acknowledge these factors, but feel they're changing.
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on April 10, 2018, 07:59:04 AM
Yup, RCII is improving.
I'd be scared sh!tless if I were in this crowded short.

Business is better since the $13 bid.

Engaged Capital, Arlington Value, Vintage Capital & maybe Cerberus know it's worth much more than a measly $13.
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on April 10, 2018, 09:14:55 AM
Engaged Capital Presentation:
http://www.engagedcapital.com/press/RCII-Presentation.pdf

Title: Re: RCII - Rent-A-Center
Post by: flesh on April 16, 2018, 02:58:13 PM
Core sales of rcii are decreasing slower than aaron's. Trying to figure out how much of acceptance now's sales are included in core's top line number (when inventory is repossessed/resold) for each company. Trying to isolate core and answer what's different vs aarons core. Acceptance now's sales increased concurrently with core's declines. For me this is the crux. Help here would be nice.

Is it a melting ice cube or a credit cycle play getting cheap. Did mgmt party top of cycle when they should have pondered? I don't believe core goes away, slowly shrinking for decades imo... need to get closer on pace of entropy.

Title: Re: RCII - Rent-A-Center
Post by: MrB on April 26, 2018, 01:17:43 AM
Rumor mill -- "Rent-A-Center deal expected next week"


https://seekingalpha.com/news/3348662-rent-center-deal-expected-next-week
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on May 01, 2018, 10:15:32 AM
Earnings Out!
Solid deleveraging & just 2 months until a potential sale:

For the three months ended March 31, 2018, the Company generated $84.5 million of cash from operations, ended the first quarter with $81.4 million of cash and cash equivalents, and reduced its outstanding debt balance by $77.6 million. Subsequent to quarter end, debt on the revolver was reduced to a zero balance as of April 30, 2018.

https://www.businesswire.com/news/home/20180430006461/en/Rent-A-Center-Reports-Quarter-2018-Results
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on May 01, 2018, 12:29:17 PM
Does any here Allan Mecham's thesis on RCII?

It appears to be a very large position for Arlington Value.

The last time I followed him into an investment was Cimpress! And I owe him one!
Title: Re: RCII - Rent-A-Center
Post by: Foreign Tuffett on May 01, 2018, 12:44:44 PM
Rumor mill -- "Rent-A-Center deal expected next week"


https://seekingalpha.com/news/3348662-rent-center-deal-expected-next-week

Any idea on who is leaking all the info. And why?
Title: Re: RCII - Rent-A-Center
Post by: flesh on May 02, 2018, 10:02:49 AM
q1 adj ebitda 25m = 100 m run rate plus 75m (low end of run rate savings) gets you to 175m ebitda assuming it doesnt melt and they can hit low end of guidance. 935m end of cy 18 EV at 9.43/share, adding 85m remaining fcf for year to current cash, 81m.

175m
-50m capex (high end guided)
-36m interest
= 94m pre tax
-25% tax
=70.5m
fcf/ev end of cy 18 = 13x
fcf + I /ev= 9x
fcf/mkt cap = 7x

I'd say it's too cheap IF it doesn't melt or melts very slowly and/or D and A are lower than 50m run rate and/or tax rate is lower than 25% and/or run rate savings are larger than above and closer to high end of guidance. Need to triangulate the variables.

If you apply the end of cy 18 cash to debt, lower capex a bit, hit closer to high end of run rate savings, flat line sales, lower tax a bit, you have a double pretty easy.

They sold 31 stores for 9.5m claiming they were in the "third quartile" @ 306k per store. On their franchisee link, they claim a minimum startup expense of 350k. 2450 stores x 350k = 857m, or you get ANOW almost for free, including end of cy 18 cash.

Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on May 02, 2018, 10:09:11 AM
q1 adj ebitda 25m = 100 m run rate plus 75m (low end of run rate savings) gets you to 175m ebitda assuming it doesnt melt and they can hit low end of guidance. 935m end of cy 18 EV at 9.43/share, adding 85m remaining fcf for year to current cash, 81m.

175m
-50m capex (high end guided)
-36m interest
= 94m pre tax
-25% tax
=70.5m
fcf/ev end of cy 18 = 13x
fcf + I /ev= 9x
fcf/mkt cap = 7x

I'd say it's too cheap IF it doesn't melt or melts very slowly and/or D and A are lower than 50m run rate and/or tax rate is lower than 25% and/or run rate savings are larger than above and closer to high end of guidance. Need to triangulate the variables.

If you apply the end of cy 18 cash to debt, lower capex a bit, hit closer to high end of run rate savings, flat line sales, lower tax a bit, you have a double pretty easy.



Yes, If things continue to improve (FCF) then I think you are right about it being a double.

AND

52% SHORT INTEREST could add some extra juice in the short term.

Title: Re: RCII - Rent-A-Center
Post by: given2invest on May 02, 2018, 10:29:55 AM
Rumor mill -- "Rent-A-Center deal expected next week"


https://seekingalpha.com/news/3348662-rent-center-deal-expected-next-week

Any idea on who is leaking all the info. And why?

I can guess who - Engaged Capital.  The Deal/Street.com author writes regularly leaks from companies where Engaged PM is on the board.  In just the last 12 months he has written leaks on HAIN, TIVO, and RCII. 

The why is a better question...if deals are going smoothly you don't need to leak.   You leak to try and get interest from other parties/get the price higher so the bids are higher.  It's not a good sign.
Title: Re: RCII - Rent-A-Center
Post by: BeerBBQ on May 02, 2018, 11:06:46 AM


They sold 31 stores for 9.5m claiming they were in the "third quartile" @ 306k per store. On their franchisee link, they claim a minimum startup expense of 350k. 2450 stores x 350k = 857m, or you get ANOW almost for free, including end of cy 18 cash.

Didn't they also say that the royalty keeps Ebitda the same?  Does that mean they could franchise all of their stores for similar proceeds and maintain current level of EBITDA?
Title: Re: RCII - Rent-A-Center
Post by: writser on May 02, 2018, 11:29:02 AM
Rumor mill -- "Rent-A-Center deal expected next week"


https://seekingalpha.com/news/3348662-rent-center-deal-expected-next-week

Any idea on who is leaking all the info. And why?

I can guess who - Engaged Capital.  The Deal/Street.com author writes regularly leaks from companies where Engaged PM is on the board.  In just the last 12 months he has written leaks on HAIN, TIVO, and RCII. 

The why is a better question...if deals are going smoothly you don't need to leak.   You leak to try and get interest from other parties/get the price higher so the bids are higher.  It's not a good sign.

Good stuff, thanks.
Title: Re: RCII - Rent-A-Center
Post by: MrB on May 02, 2018, 12:24:48 PM
Also Fadel reduced 250 positions or 25% of corporate office and in the field they cut 60 positions. Cannot think it makes him popular, but I don't think one can say Fadel is dragging his feet.

Overall the numbers impress, but the speed is what was remarkable. They still have a lot of hard work ahead of them, but it is a great start.
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on May 09, 2018, 09:15:50 AM
Anyone have a copy of the recently released SumZero write-up (LONG) on this?

I saw the preview :    unlevered 15% FCF yield, Michael Burry "ick stock" , potential sale in Q2.

thanks in advance!
Title: Re: RCII - Rent-A-Center
Post by: Sunrider on May 09, 2018, 12:46:26 PM
Anyone have a copy of the recently released SumZero write-up (LONG) on this?

I saw the preview :    unlevered 15% FCF yield, Michael Burry "ick stock" , potential sale in Q2.

thanks in advance!

I would be very interested in this (and grateful) as well. Please send PM.

Thank you!
Title: Re: RCII - Rent-A-Center
Post by: Snorky on May 09, 2018, 04:52:16 PM
So do I...thanks a lot :)
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on May 15, 2018, 06:56:09 AM
FYI: Arlington Value added a tiny bit to Rent-A-Center

http://www.dataroma.com/m/holdings.php?m=AV
Title: Re: RCII - Rent-A-Center
Post by: BeerBBQ on May 16, 2018, 05:56:28 AM
Anyone have any thoughts on why the short interest is so high?  Is there a technical reason, an uniformed view, or is it fundamentally driven (structural, valuation, fraud, etc.)?

With the largest holder (Engaged) having significant influence in the Boardroom on the strategic alternatives process to either fix the business themselves or sell it (with that process set to conclude in at most 1.5 months) and at least 1 party that has repeatedly expressed interest in buying the company outright (Vintage - put money where there mouth is with a 5.9% position at $9.96/share and an all cash offer of $13/share), what is the perspective of fundamental shorts here?

Is it that they believe the business is fundamentally broken and can't/won't be fixed/sold. If so what is the basis for that rationale?

or is it that nobody will buy the company at prices >$10?

What else?

If it isn't fundamental, what is the technical reason for such a large short position?


 


Title: Re: RCII - Rent-A-Center
Post by: given2invest on May 16, 2018, 06:24:23 AM
Yes. Levered beast and a terrible business that has not been performing well over the medium term.

Engaged has a bad track record and doesn't have a lot of cred so I wouldn't hang your hat w/ them.  I'm in TIVO and they are also involved there but only own 2% of the company there.
Title: Re: RCII - Rent-A-Center
Post by: BeerBBQ on May 16, 2018, 06:47:52 AM
Yes. Levered beast and a terrible business that has not been performing well over the medium term.

Engaged has a bad track record and doesn't have a lot of cred so I wouldn't hang your hat w/ them.  I'm in TIVO and they are also involved there but only own 2% of the company there.

I am not familiar with EC's track record. Are you referring to investment results, their success in activism, or both?  Any details would be helpful.


Title: Re: RCII - Rent-A-Center
Post by: flesh on May 16, 2018, 09:16:31 AM
Short thesis is that ANOW and Aaron's version of ANOW (progressive) are cannabalizing sales of core RTO. If you can pay a normal price and get anything at any furniture store (plus heinous fees) as opposed to paying a huge markup up front plus heinous fees, why wouldn't you?

I'm thinking that these customers aren't often so careful but some are.

Also, Anow or progressive can't survive wo being able to resell at core locations.

Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on May 16, 2018, 09:53:43 AM
The company seems to be way ahead in their turn-around strategy: ( if SHORTS are wrong this is a Volkswagon/Porsche type short squeeze in the making)

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjkzODI4fENoaWxkSUQ9NDA1MDc3fFR5cGU9MQ==&t=1

Raised 2018 FCF guidance from $120M to $170M

For the three months ended March 31, 2018, the Company generated $84.5 million of cash from operations, ended the first quarter with $81.4 million of cash and cash equivalents, and reduced its outstanding debt balance by $77.6 million. Subsequent to quarter end, debt on the revolver was reduced to a zero balance as of April 30, 2018.
Title: Re: RCII - Rent-A-Center
Post by: given2invest on May 16, 2018, 02:09:48 PM
I love when everyone references Volkswagen/Porsche in a crowded name.  There were very specific reasons for that squeeze and it was a pair trade - this has none of those qualities. 

I spent some time looking at Engaged portfolio and their investment success.  I was not impressed.  They have had some success in selling companies - and some failures.  But if you look at their core portfolio now, HAIN, RCII, TIVO - they have lost a lot of money on all of them despite market up huge.

Re turn-around strategy working - I have no view.  But I do know that consensus is if this ends w/o a sale - the stock will go down - A LOT.  So please keep that in mind as you invest for the coming weeks.

I am not short, not long obviously.
Title: Re: RCII - Rent-A-Center
Post by: odin on May 17, 2018, 05:33:50 AM
agreed given2...the business is poor and its a levered pig.  It's only generating cash bc inventory is being liquidated.

Note that Marcato bailed.  They were involved with Engaged initially.

No position.
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on May 17, 2018, 08:07:02 AM
I love when everyone references Volkswagen/Porsche in a crowded name.  There were very specific reasons for that squeeze and it was a pair trade - this has none of those qualities. 

I spent some time looking at Engaged portfolio and their investment success.  I was not impressed.  They have had some success in selling companies - and some failures.  But if you look at their core portfolio now, HAIN, RCII, TIVO - they have lost a lot of money on all of them despite market up huge.

Re turn-around strategy working - I have no view.  But I do know that consensus is if this ends w/o a sale - the stock will go down - A LOT.  So please keep that in mind as you invest for the coming weeks.

I am not short, not long obviously.

Puts seem to be very cheap if what you say is true.
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on May 23, 2018, 07:30:36 AM
For the record:

I think something material happens in the next 2 weeks  8)
Title: Re: RCII - Rent-A-Center
Post by: given2invest on May 23, 2018, 09:27:46 AM
I love when everyone references Volkswagen/Porsche in a crowded name.  There were very specific reasons for that squeeze and it was a pair trade - this has none of those qualities. 

I spent some time looking at Engaged portfolio and their investment success.  I was not impressed.  They have had some success in selling companies - and some failures.  But if you look at their core portfolio now, HAIN, RCII, TIVO - they have lost a lot of money on all of them despite market up huge.

Re turn-around strategy working - I have no view.  But I do know that consensus is if this ends w/o a sale - the stock will go down - A LOT.  So please keep that in mind as you invest for the coming weeks.

I am not short, not long obviously.

Puts seem to be very cheap if what you say is true.

You're right...option prices are odd - very low implied vol given the event is imminent.  Still have no interest but that's odd.  I think the likely outcome is a sale at/near current prices.
Title: Re: RCII - Rent-A-Center
Post by: LowIQinvestor on May 23, 2018, 12:51:30 PM
I love when everyone references Volkswagen/Porsche in a crowded name.  There were very specific reasons for that squeeze and it was a pair trade - this has none of those qualities. 

I spent some time looking at Engaged portfolio and their investment success.  I was not impressed.  They have had some success in selling companies - and some failures.  But if you look at their core portfolio now, HAIN, RCII, TIVO - they have lost a lot of money on all of them despite market up huge.

Re turn-around strategy working - I have no view.  But I do know that consensus is if this ends w/o a sale - the stock will go down - A LOT.  So please keep that in mind as you invest for the coming weeks.

I am not short, not long obviously.

Puts seem to be very cheap if what you say is true.

You're right...option prices are odd - very low implied vol given the event is imminent.  Still have no interest but that's odd.  I think the likely outcome is a sale at/near current prices.

Something must have leaked ahead of the annual meeting. :-X