Rent-A-Center's (RCII) shares rose 10% early Monday as the furniture and electronics rent-to-own company finds itself a potential target for private buyers after activist investor Engaged Capital's Glenn Welling launched a campaign urging it to consider "a sale" of itself "in whole or in parts."
Welling, whose fund owns equity and swaps representing about a 12.9% stake, said in a securities filing that he has been talking with Rent-A-Center's management team and board and about a variety of options for the company, such as restructuring its capital allocation, strategy and board.
Rent-A-Center has similar financial characteristics to two other Engaged Capital targets, Boulder Brands and Outerwall, both of which were sold after pressure from Welling. Boulder Brands was sold to Pinnacle Foods (PF) in 2015 and Outerwall was acquired by Apollo Global Management in 2016.
It is possible Engaged Capital would launch a proxy contest to install dissident directors at Rent-A-Center if it doesn't take steps to consider a sale. The insurgent fund has launched 21 campaigns at 17 companies since 2013, including 10 director-election proxy fights, according to FactSet. If so, expect that Welling would launch a director election contest at the company's 2017 annual meeting, expected to take place on June 8. If he does so, Rent-A-Center doesn't have much time to consider its options - the deadline for shareholders to nominate director candidates for the company's annual meeting is in March.
And Rent-A-Center could be particularly vulnerable for a sale after a management shake up following a share price drop of roughly 75% in the last two years. Following some missteps and earnings estimates misses, Rent-A-Center's CEO, Robert Davis, resigned and was replaced earlier this month on an interim basis with the company's founder, Mark Speese.