Engaged Capital Challenges Rent-A-Center On Turnaround

Engaged Capital, an activist investing firm, has issued a letter to the Rent-A-Center board challenging the direction in which the management is taking the company, and Rent-A-Center has responded.

The letter, over the signature of Glenn Welling, Engaged Capital managing member, pointed out that the firm holds a 12.9% interest in Rent-A-Center, making it one of the company’s largest shareholders and that lack of substantive progress in discussions with the company’s board of directors is a concern that required rectification.

Among the letter highlights:

  • The public letter, released as part of a press release, followed up on a private letter to the board dated December 7 requesting a meeting with the chairman and a subset of directors.
  • The meeting was delayed following the resignation of the Rent-A-Cent’s CEO Robert Davis on January 9.
  • Prior to the meeting, eventually held in late January, Rent-A-Center preannounced disappointing earnings.
  • In the meeting’s aftermath, during which time management was to consider Engaged Capital recommendations, the board had been dragging its feet and paying lip service to the firm’s suggestions.
  • Rent-A-Center performance has deteriorated during the past several years due mainly to company-specific missteps that represented failures of board diligence.
  • Board support of shareholder interest is insufficient, exemplified by Mark Speese holding the titles of chairman, interim CEO and co-founder, a circumstance that makes him vulnerable to conflicts of interest.
  • Timing of executive changes, first the termination of CFO Guy Constant then the severance of ties with Davis, suggested insufficient board supervision of management and reactive than proactive turnaround efforts.
  • The board, given the difficulties of a public-market turnaround under present conditions, must consider a sale of the entire company to give more attractive prospects a private market rebound effort might enjoy.

Engaged Capital added that it is prepared to nominate a slate of independent director candidates at the upcoming Rent-A-Center annual meeting if the present board is insufficiently responsive to its concerns.

Rent-A-Center responded that it remains focused on driving long-term value for shareholders and hopes to maintain a constructive dialogue with all stockholders, including Engaged Capital. The company added that it remains focused on strengthening its core Rent-A-Center business while continuing to build upon the AcceptanceNow operation’s recent success with new pilots and wins.

To position itself for long-term growth and profitability, the company maintained that it was focused on:

  • Achieving an optimal product mix by shifting to a greater concentration of the higher-end, aspirational products.
  • Providing a better value proposition and being more customer centric to extend average rental time and improve customer loyalty.
  • Stabilizing its workforce by adding back a full-time co-worker to most stores to improve customer satisfaction and business results.
  • Utilizing technology investments and new capabilities to enable or accelerate business strategies as it seeks innovative, engaging ways to better serve customers.
  • Implementing a streamlined collection process and enhancing employee training to reduce delinquencies and collection times.

The company noted that, in addition to its near-term operational initiatives, the board and management team are evaluating cost-saving and revenue-driving opportunities to further enhance shareholder value. The company insisted that it has an experienced board that is committed to acting in the best interests of the company and all stockholders.