Report: RadioShack considering sale, Best Buy merger

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by MARIA HALKIAS / The Dallas Morning News

wfaa.com

Posted on March 26, 2010 at 12:08 PM

Is the Shack throwing in the towel?

According to a report in the New York Post, Fort Worth-based RadioShack Corp. is considering a possible sale of the company for as much as $3 billion. The newspaper cited unidentified people close to the situation and also said RadioShack is reviewing a merger with Best Buy Co.

“As a matter of policy, we do not comment on market rumors,” said RadioShack spokeswoman Wendy Dominguez.

Best Buy spokesman Jeff Haydock said: "we don't comment on competitors or speculation."

RadioShack shares have been rising all year and in morning trading hit a new 52-week high of $23.91. The stock price is up more than 70 percent from a year ago as chief executive officer Jim Day has cut costs, added new mobile carriers and new private label merchandise, beefed up marketing and stockpiled cash.

Best Buy has developed its own version of a small, RadioShack-size store and has been rolling them out since last year.

Best Buy Mobile departments have been added inside the big box retailer’s stores. It’s also a fast growing, free-standing chain.

Thursday, Best Buy said it’s planning to open 75 to 100 small stores, primarily Best Buy Mobile stores, in the U.S. this year.

Last year it opened dozens of the 1,000- to 1,200-square-foot stores in Dallas, Houston, Los Angeles, Miami and Boston. Various incarnations of the stores were in testing for almost three years in six other cities, including New York and Minneapolis, where the No. 1 U.S. consumer electronics chain is headquartered. It ended last year with 74 Best Buy Mobile stores and currently has 77.

It started its mobile phone push by forming a joint venture in 2007 with Britain's Carphone Warehouse, which uses a similar concept. Best Buy acquired a 50 percent stake in the U.K. retailer in 2008.

Thursday, Best Buy reported that fiscal fourth-quarter profits increased a better-than-expected 37 percent as strong sales of notebook computers and TVs. Best Buy is gaining market share organically. It’s also benefitted from Circuit City going out of business early last year.

Other options for RadioShack could include a massive share buyback or even a strategic acquisition of its own, funded by its $900 million war chest, a Wall Street banker told the New York Post.

RadioShack has more than 6,000 stores. In October, RadioShack launched a pilot mobility kiosk program in about 100 Target stores. Last month, Day told analysts, "we’re pleased to say that we believe the project is going well."

Last month, it reported higher sales of cell phones and coverage plans drove fourth-quarter profit up 26 percent. The better-than-expected results included a 4.7 percent increase in revenue to $1.37 billion.

In the fourth quarter, RadioShack added T-Mobile to the list of carriers consumers can pick in its stores, and it also said sales were higher for Sprint Nextel cell plans and for prepaid phones and airtime. It also got a boost from its Mexican division.

Sales at stores open at least a year rose 6 percent during the quarter.

For the year, RadioShack's profit rose 8 percent to $205 million and revenue rose 1 percent to $4.28 billion.

Private equity firms are flush with cash and as retailers recover from the recession with better-than-expected results, speculation about potential deals are accelerating. A few weeks ago, Apollo Management was rumored to be looking at RadioShack, but sources knocked down that rumor.

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