Business Context and Reporting Period
This Form 8-K, filed on September 11, 2018, by Rent-A-Center, Inc. (noting the metadata reference to Upbound Group, Inc. appears to be a discrepancy as the filing text explicitly identifies Rent-A-Center), addresses Item 8.01 Other Events. The filing serves as a voluntary supplement to the definitive proxy statement regarding a proposed Merger Agreement dated June 17, 2018, between Rent-A-Center, Inc., Vintage Rodeo Parent, LLC, and Vintage Rodeo Acquisition, Inc. The supplement was issued to address four putative class action lawsuits filed in August 2018 alleging material omissions in the proxy statement.
Key Financial Metrics and Projections
The filing does not report historical revenue, profit, or cash flow for the current period but provides unaudited projected financial information ("June Management Projections") used in the financial advisor's analysis. Key projected metrics (in millions) include:
- Revenue: Projected at $2,663 million for fiscal year 2018, declining to $2,569 million by 2027.
- Adjusted EBITDA: Projected to grow from $168 million in 2018 to $238 million in 2027.
- Free Cash Flow: Projected at $227 million in 2018, declining to $114 million in 2027.
- Unlevered Free Cash Flow: Ranges from $102 million to $164 million between 2018 and 2027.
- Net Debt: Used in the discounted cash flow analysis was $523 million as of March 31, 2018.
- Capital Expenditures: Projected at $42 million in 2018, rising to a steady $70 million annually from 2019 through 2027.
Financial advisor J.P. Morgan estimated a fee of approximately $19 million for its services, with $2 million paid upon delivery of the opinion and the remainder contingent on the Merger's consummation.
Material Changes and Litigation
The primary material change disclosed is the escalation of litigation regarding the Merger. While the original proxy statement referenced three lawsuits, this filing updates the count to four putative class action lawsuits filed in the U.S. District Court for the District of Delaware between August 2 and August 23, 2018. The lawsuits allege violations of Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9 due to alleged material misstatements or omissions. The Company states it believes the claims are without merit but is supplementing disclosures to avoid delays or adverse effects on the Merger.
Additional disclosures include details on the "Potential Sale Process" initiated in December 2017, where approximately 30 potential participants were contacted, and 11 confidentiality agreements were executed. The filing also provides updated tables regarding public trading multiples and selected transaction analyses used by J.P. Morgan to support the fairness opinion.
Guidance, Outlook, and Risks
Management Commentary and Outlook: The Board of Directors continues to recommend a "FOR" vote on the Merger Agreement at the special meeting scheduled for September 18, 2018. The Company asserts that the supplemental disclosures do not affect the merger consideration or the timing of the meeting. The projections assume flat revenues for the U.S. Core segment and revenue declines of 4% annually through 2022 for the Acceptance NOW segment.
Risks and Contingencies: The filing highlights significant risks, including the potential for the Merger to be terminated due to litigation, failure to obtain stockholder approval, or inability to secure financing. Other risks include disruption of management attention, adverse changes in relationships with employees and vendors, and volatility in the stock price. The Company explicitly disclaims any obligation to update forward-looking statements.
Investor Verification Checklist
- Verify the status of the four class action lawsuits (Stein, Herz, Robitaille, and Downing) and any court rulings regarding injunctions against the Merger.
- Confirm the details of the Merger consideration and whether the supplemental disclosures alter the economic terms for shareholders.
- Review the "June Management Projections" assumptions, specifically the projected revenue declines in the Acceptance NOW segment and the cost savings from store rationalization.
- Assess the financial advisor's (J.P. Morgan) conflicts of interest, noting the $19 million fee structure and existing banking relationships with the Company.
- Monitor the outcome of the special stockholder meeting scheduled for September 18, 2018.