Radio Shack is too expensive to be a private equity target. The firm’s shares trade at $21.80, a two-year high. That gives the company a market cap of $2.7 billion. Any buyer which offered even a modest premium would have to agree to a purchase price in excess of $3.5 billion.
Radio Shack’s 10-K shows that it only made $205 million on $4.3 billion in sales in 2009. It may be hard to find a buyer willing to pay seventeen times net income, even though the company does have a reasonably strong balance sheet.
The rumors about the sale of Radio Shack are almost certainly nothing more than rumors which have become a larger and larger part of the Wall Street M&A game. Recently Palm (PALM), Sprint (S), and GameStop (GME) have been on the market, or so the press has reported. None of the companies entered into a transaction and it is likely that none of them seriously considered a buyout.
The Radio Shack rumor may last a day or two, but no one will buy a company that is only modestly successful.
Douglas A. McIntyre
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