electronics retailer found a novel way to maximise
RadioShack’s global asset sale has
demonstrated how a retail business can maintain operations
throughout a bankruptcy process and avoid total
The US electronics company sold the bulk of its
assets, including stores and franchise agreements, and entered
into a transitional agreement with the main acquirer General
Wireless. RadioShack representatives announced last Thursday
that the company had reached an agreement to liquidate its few remaining holdings.
By dividing and selling part of its international
business ahead of this liquidation, RadioShack was able to
maximise value and continue operations at nearly half of its
"When the marketing was done and there were groups of buyers
who were interested in segments of the assets it became clear
it was more valuable to split the business," said Gregory
Gordon a partner at Jones Day who represented RadioShack.
Getting creditor consensus though was tricky. There
were calls for, even proposed plans to, liquidate entirely. The
lack of a primary stalking horse bidder early in the first
auction added to this pressure.
To gain creditor support for this path, RadioShack kept open the possibility of a
liquidation sale. Creditors were promised the company would
consider either liquidation or going concern bids, and would
make the choice based on the value of the deal.
"There was a lot of criticism that we
didn’t have a real stalking horse bid, but by the
time we got to the auction the contingencies had mostly been
eliminated," said Gordon.
In the end, most of RadioShack’s
global assets went to General Wireless (a subsidiary of
Standard General) and regional bidders in Latin America and the
Middle East. It enabled many of the stores to stay open, a rare
occurrence for a bankrupt retailer.
- RadioShack divided its global assets to raise the
value for creditors in its bankruptcy beyond what a
liquidation would provide;
- Losing bidders and large creditors objected to
the auction process, but a bankruptcy judge sided with the
- RadioShack’s stores, IP and
franchise rights globally are now held by three different
owners. They will need to figure out a method of production
and distribution, but do not have contracts to do
General Wireless purchased the stores and inventory in the
first auction. The company signed an agreement
with Sprint to house the wireless provider’s
stores in RadioShack’s.
But RadioShack’s largest creditor, Salus Capital, objected to the purchase. Salus
argued a liquidation deal it had made with Hilco Merchant
Resources offered superior value.
Delaware bankruptcy Judge Brendan Shannon agreed with
RadioShack and the creditors committee, which said the
potential cost of litigation in the Salus/Hilco deal made
General Wireless’s offer more favourable.
Once the deal was secured, General Wireless became the owner
of more than 1,700 US stores and their inventory. But without
the intellectual property (IP) rights, it was unclear if
RadioShack as a brand would continue.
The IP and outstanding franchise contracts were auctioned
off in a second round of bidding and ultimately went to General
Wireless. However the heated bidding process for these assets
opened two new court objections.
The first came from Salus, which was eventually joined by
the creditors committee. They wanted RadioShack to throw out
the winning bid, and accept a higher offer made after the
auction’s end from Wonderland Investment
There was a lot of
criticism that we didn’t have a real
stalking horse bid, but by the time we got to the
auction the contingencies had mostly been
The court sided with RadioShack and said the process had
A second objection was raised by Wonderland itself. The
company claimed the auction process was unfair because the
seller and its creditors had asked that final bids be submitted
Again, Judge Shannon sided with RadioShack, upholding its
deal with General Wireless. He ruled that Wonderland had
appropriate opportunity to submit a bid and that its proposal
was not as strong as the one accepted.
As the US saga unfolded, RadioShack’s assets
further south were also up for sale. Its IP assets and
franchise contracts in Latin America were sold to Regal
The company is no stranger to the RadioShack brand, having
purchased its franchise rights in El Salvador in 1998. The
bankruptcy purchase of the additional stores run by RadioShack,
plus the outstanding franchises agreement across the region,
positioned Regal Forest as the RadioShack owner in 36
countries across Latin America and the Caribbean.
The company was also the third bidder in the auction for the
US IP. It had hoped to take possession of the business more
Regal Forest must now work with General Wireless and the
RadioShack purchasers in the Middle East to set up global supply chains to
keep costs low and support the brand, though no official
agreement has been signed.
RadioShack still has a strong public image and brand in many
Latin America countries, but poor management at the parent
level made it difficult to secure product lines.
"The operation of the business, as in any business in a
bankrupt state, was suffering," said
Zygmunt Brett a partner at
Arias & Muñoz who represented Regal Forest. "The
sourcing of the products was not good, and this aspect is key
to the franchise."
Globally, 20% of RadioShack’s stores were run
by franchisees. These contracts were sold in the bankruptcy
agreements, but the new owners intend to make changes.
In Latin America, Regal Forest plans to adjust contracts in
each country rather than all at once so they can be tailored to
the market and local law.
Brett said: "There is no specific franchise regulation or
law per se in most countries in Central America, so you
normally regulate the relationship through distribution
They will also need to battle brand pairing that has taken
place in some countries against the terms of the contracts.
Franchisees in some countries have leveraged the reputation of
RadioShack to grow their own labels. Regal Forest will have to
either get them to stop or give up their contracts in the
jurisdiction so that it can control the company’s
image moving forward.
US franchisees will be renegotiating their contracts too.
General Wireless refused to accept the licensing agreements as
they were when it won the second auction. Franchisees had
expressed their willingness to form new contracts allowing
General Wireless to keep these stores on the market while
revamping the corporate framework.
Detroit’s bankruptcy saga
comes to end
Insolvency & corporate reorganisation report
POLL: the world’s best restructuring