Should Radioshack Just Go Private? (RSH, S)

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