The board of rent-to-own giant Aaron’s rejected an unsolicited $2.3 billion takeover bid on Tuesday and instead announced the company had acquired an online financing outfit that executives think will bolster Aaron’s bottom line.
The moves come just ahead of next week’s first quarter earnings for Aaron’s, which the company warned Tuesday would miss revenue and earnings targets because colder-than-usual weather this winter hurt store traffic.
The combination of announcements pushed Atlanta-based Aaron’s stock lower Tuesday, with shares closing down more than 4 percent to $29.24. The company’s shares had traded as high as $32.49 in March.
Aaron’s said it paid $700 million for Progressive Finance, a Utah-based online company that helps consumers purchase items via the Internet with no credit checks. Progressive, whose clients include Mattress Firm, Big Lots and Art Van Furniture, will operate as a separate company under the Aaron’s umbrella.
One of Progressive’s strengths will be to encourage online shopping at Aaron’s among customers who like the company’s products, but prefer to rent without going to stores, Chief Executive Officer Ron Allen said in an interview. That will force Aaron’s to improve its online presence — including listing prices on its website — to capture a market it has not pushed hard to gain to date.
But Aaron’s board said it was rejecting a bid by Vintage Capital Management, a private equity firm in Orlando, as “inadequate” and questioned Vintage’s ability to finance a deal.
“We carefully evaluated the Vintage proposal and directed our financial advisers to engage with Vintage on two separate occasions,” the board said in a letter to shareholders. “In those conversations, Vintage was unwilling to provide customary visibility into its ability to finance the transaction, including the source of the equity funding it would need to complete a transaction.”
Vintage, the second-largest holder of Aaron’s stock, offered to buy the company in February for $30.50 a share. The offer exposed unhappiness among some franchisees who said the company had lost its way by going after middle- and high-income customers.
Brian Kahn, Vintage’s managing partner, said the firm is disappointed in Aaron’s decision and is exploring alternatives in light of the retailer’s actions.
“Aaron’s board’s latest action and statements demonstrate why the company is failing,” Kahn said in a statement. “First, it again announced it won’t meet its own earnings guidance. Second, the company’s hasty decision to borrow money to spend $700 million of shareholder capital without shareholder approval further demonstrates why the company needs new leadership.”
Robert Straus, an analyst with Gilford Securities, characterized Vintage’s offer as low-ball. He said Aaron’s acquisition of Progressive has strengthened the retailer’s hand by adding a growing business to its portfolio.
“Aaron’s has become a dominating operator that will create shareholder value in the years to come,” he said.
Leaders at Aaron’s said there is still work to be done. They anticipate first quarter earnings to be challenged by a 2 percent drop in both same-store revenue and customer growth at company-operated stores because of the winter, which saw record snowfall in some areas of the country.
More than 80 percent of Aaron’s company-owned stores are in states hit by severe weather this winter, the company said.
Separately, the company appointed Ray Robinson to the chairman’s post, a position held up to now by CEO Allen. The board also said it has hired an independent compensation consultant “to help ensure that executive compensation is aligned with company performance and market practice.”
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