Soohyung Kim’s hedge fund, Standard General, has revealed that it is pursuing some plans to improve RadioShack Corporation (NYSE:RSH)‘s liquidity situation. The company has been struggling for the past months with its stock dropping by over 60% year-to-date and by over 74% over the past 52-weeks. However, with the recent development, the market is regaining confidence in the company with the stock price surging by more than 30% today.
Standard General owns around 10.13 million shares of RadioShack Corporation (NYSE:RSH), including 3.0 million shares under ‘Call’ options. The activist stake amasses almost 10% of the company’s outstanding stock. The hedge fund said that it has a proposal regarding a business operating plan and ways to improve the liquidity of the company ahead of the holiday shopping season, which could give company a long-expected boost and help it to improve its overall financial position, which will lead to a growth in the stock price of the company.
The proposal involves Standard General acquiring loans together with some other investors, which will increase the near-term liquidity of the company to help it with getting more resources for the holidays. Over the longer term, Standard General plans to recapitalize Radioshack in exchange for preferred stock, board nominations and other changes to the company’s structure. While it is not specified what kind of changes Standard General means, it might happen that the investor might pursue taking the company private.
While RadioShack Corporation (NYSE:RSH) is in a weak financial situation, many investors still seem to be bullish on the company, probably because they consider that the company could be either acquired by another retailer or taken private, which in any way will involve a significant premium over the current stock price. Among these investors is Michael Platt and William Reeves of Bluecrest Capital Mgmt., who initiated a stake in the company in the second quarter by purchasing 2.47 million shares. Israel Englander‘s Millennium Management boosted its stake by over 6,000% during the same period and owns 1.21 million shares as of the end of June. And there are many others who either raised their stakes or added the company to their equity portfolio. And even though these positions account for a tiny portion of their equity portfolios, we still can assume that these investors see some value in RadioShack Corporation (NYSE:RSH), but they won’t lose much in case their expectations are not met.
RadioShack Corporation (NYSE:RSH) has been struggling financially, posting decreases in revenue over the last quarters and constantly expanding negative earnings. In the last financial report, the company delivered revenue of $674 million for the second quarter of the year, down from $845 million a year ago. The company’s EBITDA went further down to -$104, from -$26 in the second quarter of 2013. Nevertheless, Radioshack has over 7,100 stores across the US and other countries such as China and Malaysia.
Since RadioShack Corporation (NYSE:RSH) is struggling so hard to make ends meet, probably what it needs is some serios actions from its investors and Standard General might be the solution. In the meantime, maybe it’s the right time to consider buying shares of the company, assuming that the restructurization plan set by Standard General is expected to be completed by the beginning of the year and in addition it might help the company to get through the holiday season, if everything goes smoothly.
Disclosure: none
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