update: 2:54pm, Source: Rainbow
Acquisition May Reach 13 Times Revenue
|Rainbow stock traded around $8 per share on Tuesday.
Rent a Center is acquiring the company for $16 per share in
|Factoid: The highest Rainbow has traded in the past 5
years was $13.50 per share in May of 1999
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
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
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.
"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
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.
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