With Big PE Players Bailing, Best Buy Could Get a Bargain on Radio Shack

Shortly after RadioShack (RSH) announced in March it had hired Goldman Sachs to help the company find a buyer, there was a rush of interest from major private-equity firms. Heavy hitters Blackstone Group, Kohlberg Kravis Roberts & Co., Bain Capital and TPG were all discussed as interested prospective buyers. But now that balloon of excitement has met its pin, as this week all of these knowledgeable PE buyers have withdrawn from the bidding.

This could be the moment Best Buy (BBY) has been waiting for. The big-box electronics chain has expressed an interest before in getting into mini-stores, and The Shack could provide a quick way to establish a big, national presence. The withdrawal of so many seasoned retail-company buyers is bound to make the stock price -- and therefore the purchase price -- go down, so Best Buy might well be able to get a bargain. After so many big P.E. players turn up their nose at RadioShack, there may be few other suitors, leaving the door wide open for Best Buy to possibly be a solo bidder for the chain. The situation has definitely strengthened the next bidder's hand.

The bigger question may be, if Best Buy doesn't buy it, who would? The chain might need to just keep slogging along, which CEO Julian Day has signaled isn't RadioShack's preference.

The unanswered question: What do Bain, Blackstone and the gang know that we don't? Is there something wrong with RadioShack's business fundamentals that isn't generally known? It's a little spooky for so many big private-equity firms to swoop down, take a look around, and then of a body, walk away. Maybe they toured some of the chain's older, mustier stores and got nervous.

But the company has cash and makes a nice profit, thanks in large part to its thriving mobile business. The cause of the cold feet is a bit of a mystery.

If the company needs fixing, the $800 million in cash RadioShack has on hand ought to help. The buyers could have bailed just because the company's valuation rose 10 percent on the buyout rumors, making RadioShack possibly no longer a good financial deal.

But what if there's something else? Best Buy executives have to be suspicious now. The buyer exodus could swing Best Buy back in the direction of opening their own mini-store chain from scratch and leaving RadioShack alone. And that could leave RadioShack the wallflower at the dance.

Photo via Flickr user Averain