On Tuesday Rent-A-Center shareholders handily approved the retailer’s proposed merger with an affiliate of private equity firm Vintage Capital Management, according to a filing with the Securities and Exchange Commission.
The shareholder decision comes days after Rent-A-Center and Vintage Capital Management said that Rent-A-Center and Vintage-owned Buddy’s Home Furnishings had each received a request for additional information and documents from the Federal Trade Commission as it conducts a competition review of Vintage's acquisition of Rent-A-Center, according to a press release from the companies.
That extends the current waiting period imposed by law until 30 days after Rent-A-Center and Buddy’s have substantially complied with the request, according to the release. "Rent-A-Center and Buddy’s continue to cooperate fully with the FTC," they said in the release, adding that they expect the acquisition to close in the first quarter of 2019.
Rent-A-Center has already strengthened its financial footing in part by shuttering underperforming stores, and the FTC's second request may entail shuttering yet more, in light of antitrust concerns.
The rent-to-own retailer in June forged a deal with Vintage Capital to acquire it for about $1.37 billion including net debt. Its board and now shareholders have given the acquisition their thumbs up, so all that's left are regulatory approvals. But Vintage's ownership of rival rent-to-own business Buddy's complicates that.
Buddy’s Home Furnishings says it's 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, 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," the company said. While the companies haven't said how much their locations overlap, each has a large number of stores in several states, according to the Dallas Morning News.
Rent-A-Center's U.S. labor costs in the second quarter dropped by $5.8 million and other store expenses dropped $6.8 million, driven by lower store count, the company said in July. Net profit in the quarter reached $13.8 million, up from a net loss of $8.9 million in the year-ago period, and adjusted EBITDA expanded by 470 basis points year over year to $61.2 million.
If the proposed acquisition goes forward, the company's turnaround will shift, under cover of private ownership, as a wholly-owned subsidiary of Vintage. Rent-A-Center's shares of common stock would be delisted from NASDAQ and de-registered. With that, Rent-A-Center would join the ranks of private equity-owned retailers. That group now includes Staples, taken over and broken up by Sycamore Partners last year, and hardware retail co-op True Value. The list includes dozens of others, including some of those firms that fell into bankruptcy with debt from leveraged buyouts still on their books, such as Toys R Us, Nine West, Claire's Stores, Payless, Gymboree and more.