Rent-A-Center Calls Off Vintage Capital Merger, Shares Fall 17%

Furniture and electronics rent-to-own retailer Rent-A-Center Inc RCII said Tuesday it terminated a merger agreement with Vintage Capital Management.

What Happened

Amid pressure from activist investors, Rent-A-Center agreed in the summer to sell itself to Vintage Capital for $1.37 billion. But Tuesday, the retailer said the deal is now off the table as it "did not receive an extension notice from Vintage Capital" prior to the end of Monday, which was required to extend the date of the planned merger through mid-March 2019.

The company exercised its right to put an end to the merger agreement and is justified based on the "current financial and operational performance" of Rent-A-Center. As such, the company will pay a reverse breakup fee of $126.5 million within three business days.

Why It's Important

Vintage Capital had "a lot of incentive" to finalize the merger agreement given Rent-A-Center's turnaround strategy proceeding faster than expected, Loop Capital Markets' Anthony Chukumba said in research report in early October. If the deal fails to materialize, the analyst said at the time Rent-A-Center's stock has a downside risk to the around the $13 to $14 level.

Rent-A-Center will host a conference call Thursday at 8:30 a.m. ET to discuss its 2019 financial forecast in light of the terminated merger agreement.

Shares traded around $11.95 in Tuesday's pre-market sessions, down 17.3 percent.

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Photo courtesy of Rent-A-Center.