As the once-mighty RadioShack corporation comes apart in bankruptcy court, hundreds of independently owned RadioShack shops are banding together to ensure they survive the turmoil.
The Texas company is shedding roughly 2,000 corporate-owned stores, and its iconic name is being offered up to the highest bidder.
But the independent shops there are roughly 800 to 900 in the United States are worried about being forgotten in the great shakeout.
So how did RadioShack, which had been a stock-buyback machine from 2000 to 2011, manage to eviscerate shareholder value so thoroughly that its stock has declined by nearly 99% from its December 6, 1999 high of $78.50 per share? RadioShack’s directors and officers, to answer this question, gutted the company through a reckless stock-buyback program that burned through cash as if it was trash. With the ongoing share-repurchase mania, other companies will likely follow RadioShack into insolvency.
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The following table disproves the claim that RadioShack’s recent losses are the proximate cause of its current financial difficulties. This retailer, since 2000, has turned a profit in twelve of the past fourteen years. From 2000 through 2011, RadioShack generated total profits of nearly $2.7 billion. In 2012 and 2013, RadioShack lost almost $540 million. Losses over the past couple of years, therefore, do not explain RadioShack’s present financial woes. Hence, in order to understand why this company is teetering on insolvency, it is critical to focus on the fact RadioShack has engaged in stupefying stock buybacks in ten of the past fourteen years. Perhaps massive stock market bull runs and miniscule interest rates, over the past fourteen years, have played into management’s decision to aggressively repurchase shares.
To be sure, this table should be embarrassing to RadioShack’s directors and officers. Share repurchases, since 2000, have exceeded net profits by an astonishing $889.7 million. It’s no wonder why this company’s net worth is approaching $0; and, I believe, will soon go negative. Wouldn’t these directors and officers love to have the $3 billion, they spent on stock repurchases, back in the company’s bank account? Wouldn’t an extra $3 billion, of cash, buy management the time it needs to execute its turnaround plan? RadioShack, once again, had been profitable for twelve of the past fourteen years; meaning it did a lot of things right and pleased countless customers. Alas, with a paltry cash position of $61.8 million, as of May 3, 2014, it appears unlikely RadioShack has the liquidity to execute its turnaround plan—even with a credit facility available, I believe its balance sheet is too far gone to avoid bankruptcy. Remind me again of what defines excess cash? How did share repurchases enhance shareholder value?
That's an interesting commentary that brings up even more interesting and pertinent questions. For one , who was selling the shares? Could this be a case of insider trading so the management could get out from under before the finale?
I'm not following this article's logic. It's not uncommon for distressed companies to engage in stock buyback to prevent a hostile takeover. While this tactic is often viewed as management protecting their own jobs, most takeovers result in common shares losing most or all of their value (as happens when the company is heavily leveraged by a raider, a typical occurrence in this scenario). So the tactic is justified as exercising fiduciary duty to the shareholders, which is management's legal responsibility. As it turns out, shareholder value is zero in most BKs, as what happened here, but shareholder lawsuits in such cases are hard to wage and win. US federal bankruptcy courts decide who gets the leftovers. People don't go around suing bankruptcy trustees because they lost money on some stock certificates.
Secondarily, having fewer outstanding shares can make for an easier transition to a private company. That can offer advantages when restructuring. Obviously, RS didn't get to that point in time.
So, no, I don't see this as remarkable at all. Lots of companies have done the same thing, and occasionally, they've come out the better for it.
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That's an interesting commentary that brings up even more interesting and pertinent questions. For one , who was selling the shares? Could this be a case of insider trading so the management could get out from under before the finale?
Secondarily, having fewer outstanding shares can make for an easier transition to a private company. That can offer advantages when restructuring. Obviously, RS didn't get to that point in time.
So, no, I don't see this as remarkable at all. Lots of companies have done the same thing, and occasionally, they've come out the better for it.