update: 2:54pm, Source: Rainbow Acquisition May Reach 13 Times Revenue

Rent-A-Center (RCII) has announced a deal to acquire competitor Rainbow Rentals (RBOW) for $16.00 in cash per share of Rainbow common stock or $94.9 million. The final cost will be higher due to the agreement that provides each holder of options of Rainbow, to receive an amount equal to the difference between $16.00 and the exercise price of the option.

Rainbow CEO Wayland Russell (who's who), President Michael Viveiros, and Chief Financial Officer Michael Pecchia, will leave the company after the transition. It is unclear what, if any role other Rainbow executives may have. Mr. Russell has been Chairman of the Board and Chief Executive Officer of the Company since February 1997, having previously served as the Company's President since its inception in 1986. Mr. Viveiros has been President of the Company since February 1997, having previously served as Vice President since the Company's inception in 1986.

At a selling price of $94.9 million or $761,000 per location; Rent a Center will pay over 11 times monthly revenue depending on the final cost. (For the quarter ended September 30, 2003, Rainbow reported revenue of $25.4 million, or $67,700 per location). Rent a Center paid 10 times revenue for 295 Rent Way stores in December 2002.

David Carpenter, director of investor relations at Rent a Center told RTO Online "There very good performing stores. They have monthly revenue of $68,000 (nearly equal to Rent a Center average of $70 - 72k per location per month)." Company officials feel that with Rent a Center's volume buying and fee structure, gross profit margins won't take long to improve at the acquired locations. 

Aaron Rents has been interested in acquiring Rainbow for years and as of January 2003, owns 8% of Rainbow Rentals stock. (see story: Aaron Rents Ups Stake in Rainbow Rentals to 8%). Aarons execs may have been disappointed missing an acquisition...but doubling an investment in 24 hours will give considerable comfort.

Rent a Center closed or merged 177 of the Rent Way stores it acquired. Rent a Center company officials would not comment on the number of Rainbow stores that may be closed or merged. However, officials noted that, unlike the struggling locations purchased from Rent Way, the Rainbow stores are good performers and they expect "most of if not all" to remain in place.

Management Comments
"We are very excited about this acquisition of Rainbow," commented Mark E. Speese (who's who), the Company's Chairman of the Board and Chief Executive Officer. "Wayland Russell (who's who) and his management team have built a successful rent-to-own operation for which we have a great deal of respect. The operating philosophies of Rent-A-Center and Rainbow are similar and, given our track record of successfully integrating acquisitions and our proven business model, we believe that this transaction will create additional value for our stockholders," continued Mr. Speese. "Furthermore, we expect to realize cost savings in advertising, purchasing of rental merchandise and overhead. As a result, following an initial transition period, we believe the transaction will be accretive to our 2004 earnings per share with additional accretion thereafter," Mr. Speese said.

Mr. Wayland Russell, Chairman and CEO of Rainbow indicated, "We have a high regard for Rent-A-Center and its strong senior management team. We believe that our customers will be well served by this transaction and that it will provide growth opportunities for our nearly 900 talented associates. As a co-founder of Rainbow 18 years ago, I have great pride in our collective accomplishments which have now culminated with the sale of our business to a first-class industry-leader."

Mr. Russell stated, "We are pleased that Rent-A-Center has made this all cash offer to our shareholders, which has been unanimously approved by our Board of Directors. Our President, Michael Viveiros, and I have approved the transaction and have entered into voting agreements with Rent-A-Center under which we have agreed to vote our shares in favor of this transaction."

Rent-A-Center intends to fund the acquisition primarily with cash on hand, as well as availability under its senior credit facility. The acquisition, which is expected to be completed in the second quarter of 2004, is conditioned upon customary closing conditions for a transaction of this nature, including the receipt of requisite regulatory approval and approval of Rainbow's shareholders. (see :FAQ page on the Hart- Scott-Rodino Act (Antitrust))

Rainbow was advised by NatCity Investments, Inc. in connection with this transaction.

Rent-A-Center will broadcast its quarterly earnings conference call on Tuesday, Feb. 10, 2004 at 10:45 a.m. ET over the Internet. This call will discuss both the Company's earnings release that will be issued after the close of the market on Monday, Feb. 9, 2004 and provide further information concerning the Rainbow acquisition. Audio of the call will be broadcast live and will be from My RTO Portfolio.

Rent-A-Center, Inc., headquartered in Plano, Texas, currently operates approximately 2,651 company-owned stores nationwide and in Puerto Rico. Rainbow operates 124 stores in 15 states ; Connecticut, Georgia, Indiana, Kentucky, Maryland, Massachusetts, Michigan, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, and Virginia. Established in 1986, Rainbow is headquartered in Canfield, Ohio, and employs nearly 900 associates.