Standard General, RadioShack’s largest shareholder, is in talks with the troubled American electronics retail store franchise business to improve its cash position before the pivotal holiday season starts.
RadioShack shares, which has been sliding all month after it warned that it may have to file for bankruptcy, surged 44% to $1.14 on Friday after Standard General announced the news.
The hedge fund, which had a 7.08% stake in RadioShack, announced it had increased it to 9.8%. It is currently in talks with the electronics retailer to purchase its loans and other commitments under an asset-backed credit facility.
Standard General has also signed a standstill agreement with RadioShack, preventing it from taking over the board or proposing an acquisition or restructuring without RadioShack’s consent. The agreement lasts until June 2015.
According to a regulatory filing, Standard General has an option to buy 3 million more shares at $1.50 each. The option expires in January 2016.
At the beginning of August, 2014, RadioShack had $650 million in debts against $30.5 million in cash.
Standard General may acquire more of RadioShack
According to Standard General, it would, along with some other investors, invest in the credit facility. In a regulatory filing, the hedge fund said the investors have committed to provide draft financing to fund the transaction. The investors were not named.
Standard General and the new investors could be aiming to acquire a stake in RadioShack and placing their own people on the Board of Directors.
RadioShack’s attempts at restructuring have been undermined by disagreements with vendors and creditors.
Standard General previously organized a rescue plan for troubled retailer American Apparel Inc.
UBS AG is also in talks with RadioShack regarding a financing package so that it can stock up before the holiday season starts.
The Street rates RadioShack as “a sell”, because of its multiple weaknesses, which it believes outweigh its strengths.
RadioShack’s creditors oppose Standard General’s plan, saying all it will do is postpone an inevitable broader restructuring later on. They would prefer to see the immediate closure of stores, so that liquidated inventory could be sold for more before the holiday season.
