McGuire's Marcato Notches Win As Rent-A-Center To Explore Strategic Options

Oct 30 2017 | 8:54pm ET

Mick McGuire’s activist hedge fund Marcato Capital Management has notched a victory in its campaign against Rent-A-Center, as the rent-to-own specialty retailer’s board agreed to explore strategic and financial options and said its chairman would resign.

Marcato disclosed a 4.9% stake in the company back in April, joining forces with fellow activist fund Engaged Capital in pushing for change at the company. In its first letter to the board, Marcato immediately urged the company to begin looking at strategic options, including the possible sale of the whole company, and threatened to replace the board if necessary.

Engaged won a proxy contest in June and sat three directors on the company’s board, but action has not been forthcoming. In July, Marcato penned another letter, this time taking issue with the delay and noting that potential buyers might raise their offers if management was interested in negotiating. This year, the company has rebuffed interest from the likes of HIG Capital, Lone Star Funds and Vintage Capital. 

The resignation of Rent-A-Center’s chairman, Steven Pepper, is effective immediately and was in protest of the board’s decision, a Reuters article said. 

Details about the strategic evaluation process will not be disclosed until the company’s board has approved a course of action or once the process has concluded, the article added. 

Rent-A-Center reported a larger-than-expected third quarter loss of $12.6 million on Monday, or $0.15 per share after adjusting for non-recurring items.  The average estimate of five analysts surveyed by Zacks was for a loss of $0.08 per share.

A protégé of well-known activist Bill Ackman of Pershing Square Capital Management, McGuire founded San Francisco-based Marcato in 2010 with backing from Blackstone. The firm manages more than $1 billion in assets.

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