Posted: December 7th, 2014

RadioShack Last Glimpse of Hope – MGT 449.pdfView in a new window

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RadioShack Last Glimpse of Hope – MGT 449.pdfView in a new window

Individual Assignment (50 points)

Investigate, research, and write-up a one to two page analysis of the Radio Shack article about an organization NOT doing well. Describe how and why the organization is NOT doing well. Provide citation of the article but NOT a copy of the article. More specifically, answer EACH of the following questions in an organized format:

1. Describe how and why the organization is NOT doing well. Be sure to include what specific issues are driving the problems in this organization?

What basic economic business principles are central to the problems Radio Shack is experiencing in this article?

What SPECIFIC information in this article is MOST important AND what SPECIFIC information in this article is LEAST important?

What lessons, from a strategy lens, can be learned from this assignment AND what specific recommendations would you suggest?

What other sources of information did you access and use [Be sure to provide citations] that provided any additional information and insights; more specifically briefly list WHAT that additional information provided and WHAT insights you found.

This assignment MUST be timely submitted in Canvas no later than Sunday night 7 December before 11:59 pm. You may submit before the deadline BUT note that any submission after that date and time will NOT be accepted for a grade. Accordingly, please be sure to submit prior to the 11:59 pm deadline

RadioShack: The Last Glimpse of Hope Summary
• If it is to survive, RadioShack has to stop bleeding cash by closing most of their underperforming stores. • In order to do this, the company has to renegotiate its covenants with a portion of its creditors. • The probability of this renegotiation depends on: [i] debt recovery in case of liquidation; and [ii] the chances of success of a smaller company.
RadioShack’s (NYSE:RSH) turnaround prospects never looked so bleak. At the current pace, some analysts expect the company to run out of cash as early as next year. Its bonds trade at all-time lows, priced on an equal footing as other distressed companies. Its credit default swaps have soared in recent months.
Its dip has been so disastrous, more than 80% since October 2013 that any investor that thinks himself/herself as a contrarian should at least take a good look at this company. What makes it more interesting is that some institutional investors and insiders are betting on this company’s turnaround and could stand to gain handsomely if proven right, including CEO Joseph Magnaca.
This is not another article repeating everything that is wrong with the company, other SA authors already offer plenty on that topic. In this article I attempt to cover what I think is the most relevant driver of this company’s prospects to avoid bankruptcy: a successful covenant re-negotiation with some of its debt holders.
A Constrained Turnaround Effort
“In an emergency room the doctor is hands on… Turnarounds [are] like an emergency room, and you can’t be afraid of blood.” John Chen.
John Chen, current CEO of BlackBerry (NASDAQ:BBRY) and recognized turnaround artist, likes to compare himself to a doctor trying to save his patient. As such, the first step of any turnaround is to cut the bleeding.
I believe that if RadioShack is to survive, it should cut the bleeding as quickly as possible. Magnaca, of course, knows this. One of the five points on his turnaround plan is operational efficiency, aiming to close as many as 1,100 underperforming stores as soon as possible. The problem? The closing of more than 200 stores in a single year has to be approved by its debt holders.
Some SA authors take this as definitive proof that RSH’s days are numbered. Take this article, for example. The author argues that since RadioShack is constrained to close just 200 stores per year, its only option for survival is to “dramatically increase sales.” Clearly this author has never seen first-hand a distressed investment play. He fails to take into account that covenants aren’t set in stone.

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