Mike Baker and team from Deutsche Bank have paid close attention to the rumours of a RadioShack (RSH) takeover or buyout offer.
Baker says the maths of a RadioShack LBO works “on paper,” but it’s going to be a tough one. Here are a few ways the deal could play out:
- A buyer could offer a 20% premium buying out RSH at its current share price of $22.50 using 70% debt and 30% equity for the purchase.
- As mentioned, we believe a buyer would need to achieve a sales CAGR of 1.0% through 2014 and bring EBITDA margins to about 13%, which would equate to EBITDA of about $600mm. The risk is that this is above our long term EBITDA model of $539mm, which we believe is above consensus and is based on a margin of 11.7%.
- Sales and margins would need to grow faster than expected.
- Deutsche Bank maintains a $25 price target on RSH stock.
Still, no matter how you look at it, RadioShack is still a dog with fleas.
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