Rent-A-Center Inc (NASDAQ:RCII) is being urged to sell itself by one of its largest institutional shareholders. This follows the decline of the stock price by more than 75 percent in the last 24 months.
Engaged Capital, an activist investment fund which has a 12.9 percent stake in Rent-A-Center, accused the board of directors of the rent-to-own company of taking no action to stem the slide of the share price from more than $35 in a period of two years. The share price of Rent-A-Center is now below $9.
“Until our recent involvement as shareholders, the board appears to have been largely asleep at the wheel as the operating performance of the company deteriorated over the past few years due mainly to a series of company-specific missteps,” a letter released by Engaged Capital read.
Hard-hitting letter
In a letter released by the activist investment fund, the board of directors of Rent-A-Center was accused of letting personal loyalties take precedence over shareholder interests. Engaged Capital also says that with Mark Speese bearing the titles of interim chief executive officer, chairman, and co-founder all at the same time, he was prone to conflicts of interests. The Rent-A-Center co-founder and chairman took over as the chief executive following the resignation of Robert Davis as CEO last month.
The activist investment fund further alleges that the recent shakeups in the executive suite of the rent-to-own company were further evidence of the board’s inaction and internal conflicts. Late last year, Rent-A-Center’s chief financial officer was fired by Davis only for the CEO to resign later.
Higher chances of turnaround if firm sells itself
Owing to the concerns Engaged Capital has, the activist investment fund is urging the board of the rent-to-own firm to sell the entire company. While the fund believes the company can still create value, Engaged Capital is convinced that the turnaround process that the interim management has outlined stands higher chances of success if the firm goes private. Rent-A-Center’s board responded by saying it welcomed constructive ideas.
In Tuesday’s trading session, shares of Rent-A-Center Inc dropped sharply by 5.56 percent to close the day at $7.98.