Court sides with Rent-A-Center in merger dispute
UPDATE: March 15, 2019: Rent-A-Center CEO Mitch Fadel in a company press release last week hailed a March 14 Court of Chancery of the State of Delaware ruling that validates the company’s termination of the merger agreement and said the company expects the court to also approve a $126.5 million termination fee. Vintage Capital banker B. Riley expressed disappointment with the decision and maintained in a separate press release that “Rent-A-Center’s position with respect to the reverse breakup fee does not have merit.”
UPDATE: December 18, 2018: Vintage Capital on Tuesday issued a statement regarding Rent-A-Center's move: "Rent-A-Center’s purported termination of our merger agreement is invalid. Vintage believes that the merger agreement remains in effect and that Rent-A-Center’s actions constitute a further material breach of the merger agreement. Vintage intends to pursue all available remedies against Rent-A-Center."
Rent-A-Center on Tuesday said it has terminated its merger agreement with private equity firm Vintage Capital Management (owner of one of its major rivals), which was overwhelmingly approved by Rent-A-Center shareholders in September.
The companies received a "second request" from the Federal Trade Commission, according to a press release. That's an indication that the agency's look into the antitrust implications of their merger would be at least somewhat protracted. Rent-A-Center's board of directors "determined not to exercise its right to extend the end date and instead elected to exercise the Company's right to terminate the Merger Agreement," according to the release.
The rent-to-own retailer has asked the private equity firm for its agreed-upon breakup fee of $126.5 million within three business days, according to the release.
Vintage Capital first agreed to acquire Rent-A-Center in June for about $1.37 billion including net debt, but the fact that it already owns rent-to-own retailer Buddy's Home Furnishings was a known complication with the potential to wrench the plan.
Buddy's Home Furnishings claims to be the third largest rent-to-own retailer in the U.S., with more than 330 stores nationwide, according to the company's website. Rent-A-Center, meanwhile, owns and operates some 2,350 stores in the U.S., Mexico, Canada and Puerto Rico, and about 1,250 "Acceptance Now" kiosks in the U.S. and Puerto Rico, according to a press release. Its Rent-A-Center Franchising International, Inc. subsidiary is a franchiser of another 250 rent-to-own stores operating under the trade names of "Rent-A-Center," "ColorTyme," and "RimTyme," according to the company.
Buddy's and Rent-A-Center had already each received their second requests from the FTC when Rent-A-Center's board approved the idea, but neither opted to ask for an extension, which they would have had to do by Monday, according to the press release.
The end to the merger and the substantial breakup fee could leave Rent-A-Center in a better position going forward. The retailer earlier this year had already strengthened its financial footing in part by shuttering underperforming stores and may have been forced into more closures due to antitrust concerns. In fact, it may have dodged a bullet in light of the tendency of private equity firms to overload retailers with debt.
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