RadioShack tanks after comeback plan hits the skids

Jeff Macke
0

Shares of RadioShack (RSH) have been getting hammered lately, even by its standards. The stock is down more than 20% in five days and today we found out why. According to the Wall Street Journal RadioShack management is in tense negotiations with lenders over the company's plan to close as many as 1,100 of its 4,300 US stores.

RadioShack announced its store reduction plan in March when it revealed a $191 million loss for the holiday quarter. The plan was the closures would allow the company to focus on its new prototype stores. Now lenders are claiming RadioShack's credit aggreements only allow the company to close 200 stores without agreement from debt holders.

According to the Journal the debt holders are actually pushing the chain to close even more locations, perhaps as much as half of the entire chain. The negotiations will likley come down to how proceeds from the liquidation of inventories are split-up. Suffice it to say shareholders are last in line to collect.

RadioShack was once a $75 stock with a greater than $15 billion market cap. Today shares are going for about $1.60 and the entire chain could be yours for less than $200 million. Not that you should be looking to buy the dip. As a rule of thumb, when a company is doing so bad that it literally can't afford to go out of business, its worst days are still to come.

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