A turnaround expert who joined struggling RadioShack in the fall to help lead restructuring efforts said the company overestimated how far its cash would go as it sought to improve its fortunes during the holiday sales period.
A $120 million loan the Fort Worth-based electronics retailer received from Standard General in October didn’t provide as much liquidity as the company thought it would, RadioShack’s Chief Revitalization Officer Harry J. Wilson said at a conference for restructuring professionals in Las Vegas. Cash was reduced by the need to pay past-due accounts.
The insufficient funds led Standard General, also RadioShack’s largest stockholder, to change course this month and put the company in bankruptcy protection. The hedge fund plans to buy 1,500 to 2,400 of its 4,000 locations out of bankruptcy, most of which will be run in a deal with wireless carrier Sprint.
“The leash they had was much shorter than they were led to believe,” Wilson told the lawyers, financial advisers and investors of distressed debt who attended the Turnaround Management Association’s Distressed Investing Conference in Las Vegas on Thursday. Managers weren’t used to dealing with “distressed situations” or day-to-day liquidity issues, Wilson said.
Wilson, who led General Motors Co.’s restructuring and represented Hostess Brands union interests, said he was “skeptical” about RadioShack’s options when he was hired to lead its restructuring in October. “I’m not a big fan of physical retailers,” he said.
He said his team identified about $300 million of annual cost reductions that were thought to be enough to get the company through the holiday sales period. He calculated those savings from trimming about $180 million by closing 1,100 unprofitable stores, as much as $80 million from changing staffing models, $30 million from corporate-level efficiencies plus other cuts.
Those savings, which the company announced in December, weren’t enough to fix RadioShack.
“Holiday sales were disappointing,” Wilson said. “They couldn’t buy inventory” because of liquidity constraints, he said.
Wilson and the company had thought there was “a good chance” at restructuring out of court, “but there was one party who clearly wouldn’t consent to getting a deal done,” he said, declining to identify the investor that blocked negotiations.
Eventually, the company began offering its stores to retailers such as Sprint. “No investor will invest on a hope and a prayer. That’s why we brought in Sprint and talked to others,” he said.
“The precipitous decline of this business is really amazing,” Wilson said.