Engaged Capital Condemns Spendthrift Culture of Entitlement at Rent-A-Center
September 05 2017 - 8:30AM
Business Wire
- Expresses outrage at RCII’s ownership
of jet aircraft, yet another contributor to Company’s bloated cost
structure.
- Believes Chairman’s use of company
aircraft to attend routine meeting constitutes a gross misuse of
shareholder capital.
Engaged Capital, LLC (together with its affiliates, “Engaged
Capital”), an investment firm specializing in enhancing the value
of small and mid-cap North American equities with a 20.5% economic
exposure to Rent-A-Center, Inc. (“RCII” or the “Company”)
(NASDAQ:RCII), today issued a public letter to the Audit Committee
of RCII.
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RCII Aircraft, John Wayne Orange County
Airport - August 8, 2017. (Photo: Business Wire)
The full text of the letter follows:
September 5, 2017
Rent-A-Center, Inc.5501 Headquarters
DrivePlano, Texas 75024
Attn:
Jeffrey J. Brown, Audit Committee
Chair
Rishi Garg, Audit Committee Member
J.V. Lentell, Audit Committee Member
Gentlemen:
As you know, Engaged Capital is the largest shareholder of
Rent-A-Center, Inc. (“RCII” or the “Company”), with a 20.5%
economic interest in the Company. During our proxy contest, we
highlighted to shareholders (and the Board) that we believed the
Company’s corporate cost structure was bloated and as a result
concluded that there were ample opportunities to reduce corporate
overhead to create additional shareholder value. As a reminder,
RCII’s corporate cost structure ballooned under former CEO Robert
Davis from $116 million in 2013 to $141 million in 2016.1
While we expect that this opportunity will be addressed by the
new Board and management, we have become concerned that RCII has
developed a spendthrift culture that is coming straight from the
top, starting with the new Chairman of the Board. As Audit
Committee members and our fiduciaries, we would like to bring to
your attention the gross misuse of shareholder capital that we
witnessed. You may know that Chairman Steven Pepper recently
visited with me in California. While I certainly appreciated
Steven’s visit, I was shocked and dismayed to find out that he used
the Company’s private aircraft to travel round trip from his
residence in Mexico City to Newport Beach, California. Please see
the below photograph of RCII’s aircraft at the John Wayne Orange
County Airport taken on August 8, 2017, the same day Mr. Pepper
visited.
Frankly, I believe it is unwarranted for a company of RCII’s
size to own a jet aircraft, and I am sure the rest of the
shareholder base would agree. Further, I am flabbergasted that the
Chairman of the Board thinks it is appropriate to spend what we
estimate was over $50,000 to fly from Mexico City to Newport Beach
while a round trip ticket from Mexico City to LAX in standard class
would have cost under $700 and a business class ticket likely would
not have exceeded $3,000. How is it possible, in the face of the
challenges facing the Company, that this exorbitant expense can be
justified?
We urge the Audit Committee to examine first and foremost how
the Company can justify owning or leasing an aircraft as well as
how the existing aircraft is being used. For a company that is
struggling like RCII, this would seem to be a cost reduction
opportunity that falls into the low hanging fruit category.
On behalf of the shareholders of RCII, thank you for your
service.
Best Regards,
Glenn W. WellingEngaged Capital
About Engaged Capital:
Engaged Capital, LLC (“Engaged Capital”) was established in 2012
by a group of professionals with significant experience in activist
investing in North America and was seeded by Grosvenor Capital
Management, L.P., one of the oldest and largest global alternative
investment managers. Engaged Capital is a limited liability company
owned by its principals and formed to create long-term shareholder
value by bringing an owner’s perspective to the managements and
boards of undervalued public companies. Engaged Capital’s efforts
and resources are dedicated to a single investment style,
“Constructive Activism” with a focus on delivering superior,
long-term, risk-adjusted returns for investors. Engaged Capital is
based in Newport Beach, California.
1 Non-GAAP corporate expense, excluding depreciation and
amortization.
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Media Contact:Bayfield Strategy, Inc.Riyaz Lalani,
416-907-9365rlalani@bayfieldstrategy.com
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