RadioShack Stock Moves Toward Zero
January 15, 2015 by Douglas A. McIntyre
It is rumored, but not confirmed, from an exclusive story in the Wall Street Journal, that RadioShack soon will file to go into bankruptcy. The company, at that point, may be stripped of its assets. The article reports:
Meanwhile, RadioShack is in talks with a private-equity firm that could buy its assets out of bankruptcy, the people said. They cautioned that the talks with the private-equity firm may not produce a deal and that the company may try instead for a more typical reduction of debt and restructuring of its operations in bankruptcy court.
Common shareholders should be anxious because the debt holders have preference over them in a liquidation. Those bond holders may fight over RadioShack’s assets or may distribute them in an orderly fashion. Given the size of the debt, the questionable value of the assets and RadioShack losses, shareholders will have nothing to hold.
The market is full of investors who buy shares in companies like Circuit City or GM before their bankruptcies, who believe they can see the future and it is rosy. Now and then, they are wrong. Being wrong in those cases is costly. (It should be noted that sometimes smart investors who own the shares hedge their bets.)
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Shareholders should have anticipated a grim future. RadioShack’s new CEO wanted to shutter over 1,000 of the retailer’s nearly 5,000 stores. Salus Capital Partners, which has given the public company money, blocked the move. It is hard to understand what the motivation was. The decision put RadioShack closer to doom.
On December 11, RadioShack announced that its position was horrible when it released earnings for the quarter that ended on November 1:
Total net sales and operating revenues were $650.2 million, compared to $775.4 million last year. Comparable store sales were down 13.4% driven by traffic declines and soft performance particularly in the mobility business.
Also:
Loss from continuing operations was $161.1 million, or $1.58 per diluted share, compared to a loss from continuing operations of $135.9 million last year. On an adjusted basis, loss from continuing operations was $125.3 million, which included write-off of fees in connection the debt extinguishment of $28.1 million, which compares to an adjusted loss from continuing operations of $91.1 million last year, which included inventory assortment adjustments of $47.0 million.
December 11 was among the last good chances shareholders had to bail out, although the stock was lifted after than on rumors of bailouts.
RadioShack’s shares will drop to zero, and a lot of investors will be burned.
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