SAN FRANCISCO, April 10, 2017 /PRNewswire/ -- Marcato Capital Management LP ("Marcato"), a San Francisco-based investment manager affiliated with funds that beneficially own 4.9% of the outstanding common shares of Rent-A-Center, Inc. (RCII) ("Rent-A-Center" or the "Company"), today sent a letter to the Rent-A-Center Board of Directors urging the Board to immediately commence a process to review all strategic alternatives, including a sale of the entire Company.
Shawn Badlani, Partner at Marcato, said: "Rent-A-Center has a valuable franchise in the enduring rent-to-own industry. However, the Board has presided over a total shareholder return of approximately negative 72% from the end of 2014 to March 31, 2017. Additionally, over a 1-, 3-, 5- and 10-year period, Rent-A-Center's total shareholder return has trailed that of its closest peer, Aaron's, as well as every relevant equity index or benchmark. Furthermore, the improvement plan announced today is ambitious, complicated and fraught with risk.
"We believe this terrible financial performance is a direct result of multiple years of operational and strategic missteps by the Company. Given Rent-A-Center is facing an uncertain and risky turnaround amid a management change, the Board should still authorize its advisors to solicit offers for the Company that could deliver greater and more certain value for shareholders. If the Board continues to resist a process to review strategic alternatives now, Marcato plans to vote for Engaged Capital's director nominees at the upcoming annual meeting."
The full text of the letter is below.
April 10, 2017
5501 Headquarters Drive
Plano, TX 75024
Attn: Compliance Officer
CC: Board of Directors
Dear Members of the Board of Directors,
Funds managed by MCM Encore IM LLC ("Marcato") are currently the beneficial owners of 4.9% of the outstanding shares of Rent-A-Center, Inc. ("Rent-A-Center" or the "Company"). In light of the Company's announcement this morning, we are writing to remind you of your duty to represent the best interests of shareholders, and to outline what we believe is the value-maximizing path forward for Rent-A-Center.
We strongly urge the Board to immediately commence a process to review all strategic alternatives including a sale of the entire Company.
The Company's total shareholder returns have been terrible under the existing Board of Directors, with a total shareholder return of approximately negative 72% between the end of 2014 and March 31, 2017. In fact, over a 1-, 3-, 5- and 10-year period, Rent-A-Center's total shareholder return has trailed that of its closest peer, Aaron's, as well as every relevant equity index or benchmark.
We believe it is clear that this share price performance is a direct result of multiple years of operational and strategic missteps at Rent-A-Center. This has led to the situation in which the Company currently finds itself: facing a multi-year turnaround that requires the successful execution of a wide array of initiatives and doing so with a management team in transition.
Despite the Company's announcement of Mark Speese as CEO, our discussions with Mr. Speese have made clear to us that he does not intend or desire to be the CEO for the long term and that the search for a permanent CEO and CFO could take 12 to 18 months. We encourage the Board to be conservative with its expectations for the pace and magnitude of operational improvement in light of the ongoing management transition. Based on the current share price, it seems clear to us that shareholders have lost confidence the Company can reverse course.
We agree that Rent-A-Center has a valuable franchise in the enduring rent-to-own industry, and we do believe that the Company can be fixed through better management and execution, which will create equity value for its owners over time. The key point to consider is simply whether existing shareholders can receive a greater risk-adjusted return by selling the Company to a buyer who is willing to pay for a high percentage of that available value today. We believe it is the Board's duty to explore the availability of this scenario now.
In this case, our view is that a sale very likely offers the highest possible risk-adjusted return for shareholders. Rent-A-Center is likely to be valued much more highly by private market participants than by public market investors. This is because a buyer is likely to pay shareholders based upon its confidence in its ability to execute, a confidence which is justifiably absent among public market investors.
The turnaround the Company is facing is also likely more easily achieved in a private context. The improvement plan announced today is ambitious, complicated and fraught with risk. These steps will likely necessitate accounting and cash restructuring charges and may temporarily disrupt business operations, creating volatility and a lack of earnings visibility that public markets often have a difficult time tolerating. A new owner can more easily underwrite the path of improvement and will be willing to pay shareholders today based upon its confidence in its ability to execute.
For all of these reasons, Rent-A-Center must begin a full strategic review now which includes engaging with potential buyers.
As mentioned, we believe Rent-A-Center has a valuable franchise, but is undervalued due to the Board's lack of credibility among public market investors, a lack of credibility which is deserved due to a history of mismanagement. Given the extended tenure of the incumbent Board members with the Company, we worry about complacency and whether the Company is being managed with appropriate urgency and focus. Even with the Company's stated turnaround plan, the Board should still authorize its advisors to solicit offers for the Company that could deliver greater and more certain value for shareholders.
Based on the Company's announcement this morning, our own dialogue with you to date, as well as public statements made by Engaged Capital, LLC ("Engaged"), it appears to us that the Board is not currently inclined to explore a sale. If the Board continues to resist a process to review strategic alternatives now, Marcato plans to vote for Engaged's director nominees at the upcoming annual meeting.
Marcato Capital Management LP
Mark E. Speese, Chairman and Chief Executive Officer
Michael J. Gade
Jeffrey M. Jackson
Steven L. Pepper
Leonard H. Roberts
Cautionary Statement Regarding Forward-Looking Statements:
The views expressed in this press release represent the opinions of MCM Encore IM LLC, its affiliates and the funds it manages (collectively, "Marcato"). This press release and the letter to which it refers are provided merely for general information purposes. Nothing in those documents is, or should be construed as, investment advice or as a recommendation, invitation or inducement to engage in any investment activity, and should not be used as the basis for any investment decision. Any views expressed are given as of the date of this press release, and are subject to change without notice. Marcato reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. Marcato disclaims any obligation to update the information or opinions contained in this press release.
This press release contains forward-looking statements. All statements contained in this press release that are not clearly historical in nature or that necessarily depend on future events are forward-looking, and the words "anticipate," "believe," "expect," "potential," "opportunity," "estimate," "plan," and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statements reflect Marcato's views with respect to, among other things, future events and financial performance. Forward-looking statements are subject to various risks and uncertainties and assumptions. There can be no assurance that any idea or assumption herein is, or will be proven, correct. If one or more of the risks or uncertainties materialize, or if Marcato's underlying assumptions prove to be incorrect, the actual results may vary materially from outcomes indicated by these statements. Accordingly, forward-looking statements should not be regarded as a representation by Marcato that the future plans, estimates or expectations contemplated will ever be achieved.
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SOURCE Marcato Capital Management LP