RadioShack (RSH) Option Activity Suggests Imminent M&A; Will Amazon (AMZN) Bid?

February 10, 2012 7:32 AM EST
RadioShack (NYSE: RSH) has been a hit-and-miss stock for a while with competition intensifying and the cost of retaining brick-and-mortar crimping margins. But, some investors might be making a move to snatch-up the one time foremost electronic component retailer.

According to Bloomberg, one sure sign of a possible M&A deal is options activity. Currently, about 24 percent of RadioShacks' outstanding common stock is held short, which is the largest amount since January 2008 and four-times the average of the S&P Midcap 400 index.

Despite trading at just 5.8 times earnings (the lowest of specialty retailers with a market cap over $500 million) and its recurring reliance on mobile phone sales, RadioShack is said to still trade at a 7 percent discount to net assets, one of only two companies to do so, Bloomberg noted.

But speculators aren't sitting on their hands. The cost of call options priced at just 10 percent above RadioShack's stock hit a five-year volume high this week, leading to anticipation of a possible takeover.

In January, shares tumbled as RadioShack said it would halt buybacks and disclosed preliminary fourth-quarter expectations that sent those bullish on the stock running. The stock fell 30 percent then and is down 61 percent or so over the last two years, leaving it with a market cap of about $750 million. That makes RadioShack much more appealing, but finding a definite buyer could be a problem; both Best Buy (NYSE: BBY) and hhgregg (NYSE: HGG) have seen recent trouble with increased Internet commerce competition.

Speaking of which, earlier in the week it was rumored that Amazon (Nasdaq: AMZN) might be looking to open up physical locations to promote its Kindle e-reader series and content, so maybe it might make a move on RadioShack. And, of course, you can't forget private equity investors seeing value in RadioShack.

Shares are up about 1 percent ahead of the bell Friday.

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