A judge has ruled that Rent-A-Center will not have to complete a $1.37 billion merger by Vintage Capital Management, and that the furniture retailer acted properly when it canceled the deal based on a technicality.
Bloomberg reported the issue remains of who will pay a $126.5 million breakup fee. The judge hasn’t yet decided on that, but if Rent-A Center doesn’t have to pay it, that should buoy its already rising value.
“Rent-A-Center is likely better off remaining a publicly traded company rather than selling to Vintage Capital for $15.00 a share, given the dramatic improvement in Rent-A-Center’s performance since the deal was announced last June,” he added.
Bryant Riley, chairman and co-CEO of B. Riley Financial, said he wasn’t happy with the judge’s ruling.
“We are disappointed with the Court’s decision to not compel Rent-A-Center to complete the merger with Vintage,” Riley said. “We committed our support for the deal in June due to Rent-A-Center’s strong fundamentals, and we recognized the business could be turned around by implementing a disciplined strategy.”
Rent-A-Center shares went up 3.1 percent on Friday morning (March 15), and are set to close at their highest level since October of 2015.
John Rowan, from the financial company Janney Montgomery Scott, said if the judge rules on the breakup fee in Rent-A-Center’s favor, that would add 10 cents to the 2019 earnings estimate for the company.
“We believe the issues facing the company since 2016 have been a combination of a cyclical downturn in the industry coupled with a self-inflicted blow from a failed rollout of a new point-of-sale (POS) system,” Rowan said. “Management has done a good job of moving past the POS issues and cutting costs to align the company with today’s environment.”