Rent-to-own giant Aaron’s faces an unsolicited, $2.3 billion takeover bid by a longtime investor who calls the company “a great jewel of Georgia” that has lost its polish.
News of the buyout bid by Vintage Capital Management, which holds a 10 percent stake, came as Aaron’s posted a drop in both revenue and profit for the fourth quarter.
Vintage said the bid is its fourth in three years, with prior offers “summarily ignored” by the Aaron’s board. On Friday it offered $30.50 a share, nearly 13 percent higher than Aaron’s closing price Thursday on Nasdaq.
That came just hours before the company released fourth quarter earnings, which saw sales fall 2 percent to $553.9 million and net income decline to $22.7 million, from $36.6 million a year earlier.
“The Board of Directors will evaluate the offer in line with its fiduciary duties,” Aaron’s said in a statement. “The Company is not currently in discussions with any party regarding any offer to acquire the Company.”
Aaron’s customer base has struggled to regain its footing post-recession. The company cut its fourth quarter outlook in early January because of the challenges, with Chief Executive Officer and Chairman Ron Allen acknowledging “a difficult economic environment for our low to middle income customers.”
SunTrust analyst David Magee wrote in a January note that “it may be difficult for (Aaron’s) to outperform until there is some sustained improvement in lower-end consumer trends …”
Shares of Aaron’s jumped as much as 19 percent Friday before settling to close at $28.32, up 4.7 percent from Thursday’s close, in a sign investors may not think the buyout will succeed.
In a letter to the Aaron’s board, Orlando-based Vintage said it has had an 18-year relationship with the company. The investment firm said it has significant experience in the rent-to-own industry, including several years as Aaron’s second-largest franchisee.
Vintage also is the majority owner of Buddy’s Home Furnishings, a rent-to-own business operating primarily in the Southeast.
A letter to the Aaron’s board from Brian Kahn, a Vintage managing member, said Allen was informed Wednesday of Vintage’s continuing interest in acquiring the company. Kahn said Aaron’s is “at a crossroads that will culminate with a sale of the company.”
“We believe that our proposal is compelling and in the best interest of all Aarons’ stakeholders, including its stockholders, employees and franchisees,” Kahn wrote.
Aaron’s largest shareholder, at 11 percent, is Fidelity Management and Research, owner of mutual fund company Fidelity Investments, according to filings.
Charlie Loudermilk Sr., who founded Aaron’s in 1955 after borrowing $500, is the largest shareholder among Aaron’s insiders, with almost 4.1 million shares, a 5.4 percent stake.
Allen and Chief Financial Officer Gilbert L. Danielson hold smaller stakes — 37,530 and 221,243 shares, respectively. Allen, a one-time Delta Air Lines chief executive, took over as CEO at Aaron’s in February 2012. Loudermilk retired as chairman in September 2012.
The company had 2,151 company operated and franchised Aaron’s and HomeSmart locations at the end of December.
That store count also included the RIMCO auto rental brand, which Aaron’s announced last month it sold for an undisclosed amount to Rent-A-Wheel /Rent-A-Tire.
RIMCO was created in 2004 to attract consumers interested in pricey wheels and rims during better economic times. As the economy worsened, consumers sought the company out to rent tires that they could eventually own.
In addition to its sales woes, Aaron’s is fighting lawsuits alleging it used software on its rent-to-own computers to spy on customers.
In October, Aaron’s settled separately with the Federal Trade Commission, but did not admit guilt. As part of the settlement, the company is prohibited from using monitoring technology except to provide technical support requested by a customer and has been ordered to delete or destroy information it improperly collected.
The agreement also prevents Aaron’s from using information it obtained for debt, money or property collection, and it requires the company to conduct annual monitoring and oversight of its franchisees, the FTC said.
Staff writer Russell Grantham contributed to this story.
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