Apple and Radio Shack, a dream merger

By DAVID MOON, Moon Capital Management, LLC
April 1, 2012

By now you've read or heard of Radio Shack's $633 billion takeover offer for Apple - an offer the Apple board appears eager to accept now that Steve Jobs is no longer an obstacle.

Apparently Jobs long wanted to maintain the company’s independence and never saw the wisdom in combining these two consumer electronics giants, and thus addressing a weakness that Jobs could never adequately meet as a stand-alone company.

The iPad and iPhone 4 are hot today, but they won’t be forever. Do you recall Apple’s QuickTake camera or MessagePad PDA? That is the future of the iPad.

But people have been shopping at Radio Shack for 91 years. That is stability. That is staying power. The Apple Lisa was a fad. People will always need weird speaker connectors or batteries.

That’s what new Apple CEO Tim Cook understood when he agreed to sell out for $672 per share in cash, plus a share of Radio Shack stock, valuing the deal at almost $679 per Apple share.

Apple only has about 360 stores, usually so crowded that shoppers won’t go near them. Radio Shack, however, has more than 7,000 outlets, many of which are located in easy-to-access shopping strips, with plentiful, convenient parking. And the beauty of Radio Shack’s business model is that most of its retail floor space is virtually unused.

Analysts expect Radio Shack to slightly adapt it’s recently adopted street cred moniker, The Shack, in favor of iShack, to better describe its new focus on all things Apple. Floor space currently dedicated to walkie-talkies and third-tier cell phones will become a vast showroom of Apple products. The area that warehouses the dust gathering television inventory is expected to yield to an in-store iTunes and iPad app shop.

Programmers are likely already working on apps that will control iShack wireless vehicles, soon to be run via Bluetooth technology.

Apparently the boards of the two companies discussed Radio Shack’s acquisition as recently as last spring, but then-CEO Steve Jobs was adamantly opposed to it. Jobs, a native of northern California and Silicon Valley, always considered Radio Shack too “blue collar” for his high-tech tastes.

New Apple CEO Tim Cook, however, is from south Alabama and was always a fan of the Radio Shack culture, having been one of the original members of the Battery of the Month Club during his college days at Auburn. After college, Cook ended up at Intelligent Electronics, after failing to land a position in the manager’s training program at what was then known as Tandy Radio Shack.

In what now was clearly an orchestrated capital maneuver, on March 19 Apple announced it would begin paying dividend. This long-awaited move makes perfect sense, as it will help shore up its new owner’s balance sheet.

Apple devotees may question the decision to sell out to Radio Shack, currently trading for $6.48 per share. Don’t be so quick to negatively judge the transaction. Skeptics similarly questioned Time Warner’s decision to sell to AOL in 2000 - and look how that turned out.

Have a great April 1.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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