NEWPORT BEACH, Calif.--(BUSINESS WIRE)--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.
The full text of the letter follows:
September 5, 2017
Rent-A-Center, Inc.
5501 Headquarters Drive
Plano, Texas 75024
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Attn: |
Jeffrey J. Brown, Audit Committee Chair |
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Rishi Garg, Audit Committee Member |
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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. Welling
Engaged 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.