Rent-A-Center Trial Outcome Over Its Pending Merger “is Too Close to Call,” Says Analyst

The disposition of Plano-based Rent-A-Center's merger with Florida-based Vintage Capital remains undecided in a Delaware court while investors have bid up the company's share price. At stake is a $126.5 million breakup fee that Rent-A-Center believes it is due and whether the company will remain an independent company.Raymond James analyst Budd Bugatch downgraded Rent-A-Center in a new report saying if the Delaware Chancery Court rules that the merger stands, Rent-A-Center stock could fall to $15 a share.That's the share purchase price that Rent-A-Center's board and shareholders agreed to last year in a merger with Vintage, which owns Florida-based Buddy's Home Furnishings, a chain of 300 stores.But if the judge rules that the merger was legally terminated in December, or in Rent-A-Center's favor, then the share price could rise further to a target price of $23, based on current fundamentals, Bugatch said.The stock closed Tuesday at $18.78 a share.Vice Chancellor Sam Glasscock hasn't said when he will make his ruling public, but it could be as early as March 11, the day of a scheduled hearing. The judge asked both sides to file post-trial briefs by Feb. 22 and responses by Friday.Bugatch attended the two-day trial on Feb. 11 and 12 and said the judge's questions, points he raised and asked the attorneys to address in their post-trial briefs "suggested that the case was anything but a slam dunk in favor of Rent-A-Center."And even if the termination is upheld, "the reverse break-up fee was not a certainty," Bugatch said in his note. "For us, it's too close to call."Vintage Capital filed the lawsuit after Rent-A-Center terminated the merger saying it did so after Vintage failed to send a letter extending the merger. Vintage said that the two companies had already agreed that the merger wouldn't close until early 2019 due to the federal government antitrust review that they were working on together.Rent-A-Center reported improved fourth-quarter results on Tuesday including a same-store sales increase of 9.1 percent, representing the eighth consecutive quarterly increase.CEO Mitch Fadel said improvements in operations and cost savings lifted results and "customer demand is on a trajectory."Rent-A-Center posted a fourth-quarter profit of $1.66 million, or 3 cents a share, compared with a profit of $34.8 million, or 65 cents a share, last year. Total sales increased 3.6 percent to $661.75 million.Twitter: @MariaHalkias  Continue reading...

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