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RadioShack AO Message Board

  • hzliu hzliu May 14, 2007 9:00 PM Flag

    My take of Days’ option and buyout

    Q: Does Days really want to push RSH price higher right now?
    From July 7, 2006 RSH 8K: Besides other compensation. Salary, bonus and 401K et al,
    4m sign-in option at striking price $13.82: 2m vested and excisable, 0.5m each year; rest 2m vested and excisable 0.6m0.6m 1st ; 0.6m 2nd, 0.4m 3rd and 0.4m; 0.6m 2nd, 0.4m 3rd and 0.4m fourth year on the condition of stock price; Since RSH stayed above $25 for 15 days, Days will get 1.1m for 1st year; 1.1m for 2nd year and 0.633m for 3rd year and 0.4 m for 4th year; Now if RSH can get to stay above $30 for 15 days, Days will get 1.1m for 1st year; 1.1m for 2nd year and 0.9m for 3rd year and 0.9 m for 4th year. You can see that Days still have 2~3 years to make any difference on number vested of his option. Days has no incentive right now to push RSH price any higher. Actually, the higher price will make Days less money because his other option (bonus, SIP) will be priced in higher striking price. I don�t think Days would think RSH price going up so fast. Answer is NO.
    Q: Does Days want to sell the company right now?
    One of reason for some short-term hedge fund to buy RSH is the possible buy-out. Since Days cut cost and inventory to increase cash even though EBITDA was decreased from 474m in 2005 to 285m in 2006 (from RSH Annul report). If Days arranges to sell RSH in any way, his contract with RSH will be terminated. As you know his sign-in option vested 1.1, 1.1, 0.9 and 0.9m in each employed year. He will only get 1.1 m if he sells RSH in one year of his employment. Why he wants to do this? Also Days need at least 2~3 years in CEO position to be able to fully control the company. Conclusion: there is no benefit for Days to sell RSH right now and he is not be able to sell it even he wants to do so.
    Q: What Days really want to do with RSH?
    I believe what Days said in his only CC and RSH 10Q, 10K. He want to make profit first and revenue the second. Indeed he is very good at cost cutting and inventory management. But I don�t think he is good at increasing sale (look at Kmart). As some analysts pointed out he did not say how to drive revenue. My guess that he just don�t know how. Even though he could not increase sale, it will be benefit to him if RSH does not lost money. In Days� position, he really wants RSH to grow. In his first year, he has overachieved what he need to do (RSH share up more than 100%), he get the fame. If he feel he will not be able to turn RSH into growth company, he might leave this company in one or two year before shareholders doubt his ability to grow the company. He can go to another retail chain to do his best: cost cutting and inventory management. He seems to keep a very low profile in Fort Worth, Texas, maybe just an exit strategy.
    Q: Will RSH be bought-out?
    If Days has no plan to sell, will RSH be bought-out? In current M&A frenzy, any rumor has its market. The hard part for any party to take RSH is her size, ~6000 stores and ~40,000 employee.
    Q: Why RSH price going up so much?
    Days� personal reputation and price momentum. For institutions, they will not sell if the price going up. For hedge fund long, rides the momentum, squeezes the hedge fund short. I guess that some shorts and puts are actually the hedge by institutions.
    Q: Which direction RSH price will go?
    With current price, very high expectation is built in. Analysts expect 2007 earning increase from 1.16 to 1.48 in 30 days even though RSH never increase its own number ($1.10~1.20 in 1Q release). To push RSH higher, need buy-out news or RSH announces some big partnership. If RSH miss the earning and revenue in 2Q, the price will go below $25. The reward/risk is towards short. But it seems that RSH will not get to peak until no people say short in this board.

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