Friday, March 26, 2010

Radioshack up on buyout speculation (RSH)

Radioshack(RSH) shares are up 8% today, after The New York Post ran a story suggesting the firm might put itself up for sale.

RadioShack is looking to shack up with a deep-pocketed investor.
The Texas-based electronics chain is exploring strategic alternatives including a possible sale of the company that could fetch more than $3 billion, sources told The Post.
Investment bankers have already begun pitching their private-equity clients about a leveraged buyout of RadioShack, notifying them of the retailer's willingness to sell, according to people close to the situation.

And how about this possibility:

Another possibility is a merger with big-box rival Best Buy, which lately has experimented with a smaller retail format to meet fast-growing demand for smartphones and other wireless gadgets.

"This is all about handheld devices," said one banking source close to the situation. "A whole new wave of these products are coming out and they're going to break the monopoly of the carriers," whose market power has bruised RadioShack's profits in the past."

And the price? It MUST be north of $30 per share, in my opinion. A fair value would be $42 per share. Radio Shack shares trade at $23, and they have SEVEN DOLLARS per share in cash and equivalents. If you boost this year's eps by 30% - which is the "private equity" cost cutting effect, then put a 15x multiple on that number and add back the $7 per share in cash, you get to a $42 stock. Radioshack should extract that value from a buyer, or simply not sell. That simple.

(See here for my November post on RSH, in which I said Barrons undervalued the stock...)

Copyright 2010 AlphaNinja

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