Investing

Radio Shack (RSH) For Sale? Cost Could Be Too High

The New York Post, not the single most reliable source for business news, says Radio Shack (RSH) is looking for a private equity buyer or an M&A transaction with a larger company like Best Buy (BBY). The paper reports that JPMorgan Chase “appears poised to lead the sales process for RadioShack.” Another alternative that the electronics retailer may consider is a share buyback which would use some of its $900 million in cash.


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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