By Peg Brickley
RadioShack won court approval of a lender takeover that will
send the retailing operation out of bankruptcy trimmed-down, but
still selling electronics.
Tuesday's decision from Judge Brendan Shannon clears the way for
Standard General to save 1,743 stores and 7,500 jobs in a
streamlined relaunch of the business.
An existing senior lender, Standard General offered more money
than rivals, and was the only bidder to offer the "added and
terribly important benefit of saving more than 7,000 jobs and
preserving a century-old American retailing icon," the judge said
in approving the sale.
Overtaken by newer retailers, the one-time electronics pioneer
was weighed down with some 4,000 outlets and too much debt when it
filed for Chapter 11 bankruptcy.
Standard General intends to operate most of the salvaged stores
in an alliance with Sprint Corp. The arrangement is designed to
draw mobile-phone shoppers to the electronics goods outlets without
dragging on RadioShack's profits.
The ruling came hours before a deadline that could have tipped
the sprawling chain into an all-out liquidation. RadioShack filed
for bankruptcy protection Feb. 5, and immediately launched
going-out-of-business sales at nearly 2,000 stores.
The plan was to try to save the rest, through a sale to lender
Standard General LP, a hedge fund that took an interest in
RadioShack last year. March 31 was a crucial date, as RadioShack
didn't have the spare cash to cover April rent.
Valued at about $160 million, Standard General's offer was the
best bid to come out of an auction last week where the new owner
competed with liquidators and with Salus Capital Partners, another
lender.
At times during four days of hearings in the U.S. Bankruptcy
Court in Wilmington, Del., battles among RadioShack's senior
lenders threatened to upset the Standard General proposal and
consign the company to liquidators.
Hedge funds fretted they could be successfully sued over
financial maneuvers last year, as RadioShack took a run at a
holiday season turnaround. They pressured Standard General to bid
with cash instead of by offering to cancel loans, but agreed to
drop the demand to let the deal go through.
Salus said it was treated unfairly at the auction, and tried to
block the Standard General transaction on the grounds it would
damage the value of the brand. The judge rejected those
arguments.
The "new" RadioShack only has temporary rights to use the name
and certain patents as it gets back on its feet. After six months,
unless Standard General comes up with more money, RadioShack may
need a new name.
Rival bidder Salus has first claim on the RadioShack
intellectual property, including the trademark, patents and
customer lists. Owed $150 million, Salus will get only partial
payment out of the sale to Standard General. The intellectual
property may be sold separately, and it could be sold to Standard
General. However, Salus is in active talks with other potential
buyers RadioShack's intellectual property, advisers said in court
action.
The sale means little or no money for landlords, suppliers and
unsecured bondholders.
"Unfortunately, when it comes to unsecured creditors, there was
nothing Standard General could provide from an economic
perspective," said Susheel Kirpalani, lawyer for the official
committee representing RadioShack's unsecured creditors.
To ensure the company-saving transaction made it through court,
the unsecured creditors committee agreed to support it. Creditors
that wound up on the bottom of RadioShack's pile of debt are
counting mostly on potential litigation to cover what they are
owed. Estimates are that RadioShack owes bondholders, suppliers and
landlords about $500 million.
Write to Peg Brickley at peg.brickley@wsj.com
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