RadioShack Corporation (NYSE: RSH) is in trouble. You probably know that already. Consider something else for a moment… The company’s annual earnings filing shows that smartphone migration will continue to hurt the company’s gross margin ahead.
Sprint Nextel Corporation (NYSE: S) has been part of the blame over the iPhone. Revenues in the fourth quarter did rise by 5.9% to $1.39 billion in the quarter and net income was down by about 75% to $0.12 EPS (or $11.9 million).
With a cash balance of cash balance of $591.7 million, and a $20.7 million increase in inventories to $744.4 million, we want to ask if the company should try a management-led buyout. Private equity firms either took a pass last year or they were only willing to acquire the company at a price far too low. The market cap here is only $728 million, although the company is not without debt.
What if despite all of the problems this company can manage to actually post a profit in 2012? Analysts expect a profit. If the company could manage its debt, properly eliminate unprofitable sales, and manage even an inkling of a turnaround, then it might make sense.
All pondering aside, there may still be no easy solution. Shareholders are buried here, and taking an at-the-market buyout in cash would generate no real benefit at all to them (other than a big tax write-off). The business fundamentals remain very challenged, and the company has a very obvious image problem among consumers. Julian Day could have probably managed a MBO here for The Shack, but he is now gone.
Shares are down over 7% at $7.30 and the stock is dangerously close to a 52-week low of $7.15. A buyout might make sense mathematically here. It just seems highly unlikely.
JON C. OGG
Contact [email protected] for any questions or corrections.
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