Deutsche Bank: Here's How An LBO Could Work For RadioShack

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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