Why the Internet did not kill RadioShack — Andrey Malenko

MIT Sloan Asst. Prof. Andrey Malenko

From Fortune

We’ve seen the downfall of many bricks and mortar stores over the last decade, including Borders, Circuit City, and most recently, RadioShack — to name just a few. As e-commerce continues to rise, it’s seemingly becoming more difficult for traditional stores to stay in business.

It’s true that online shopping has significantly grown over the last 10 years. Even in the last year, we’ve seen a noticeable uptick. According to the U.S. Census, total e-commerce sales for 2014 in the U.S. were estimated at $304.9 billion, which is a 15.4% increase from 2013. However, plenty of bricks and mortar stores are still healthy. Is it fair to blame e-commerce for every store closing and bankruptcy?

As a U.S. bankruptcy judge on Tuesday said he would approve a plan by the electronics retailer to sell 1,740 of its stores to the Standard General hedge fund and exit bankruptcy, it’s worth taking a closer look at why RadioShack failed. E-commerce wasn’t the only culprit. One big mistake involved poor strategic decisions over its financials. Feeling undervalued, the retailer bought back $400 million in stock in 2010 when its net profit was $206 million. It did something similar in 2011 when its net profit had declined to $72 million and it did another buy back for $113 million. In the end, it spent more than $500 million trying to push up the stock price.

Read More »

Asst. Prof. Andrey Malenko: Types of Bidders are Key Factor in Corporate Takeovers

MIT Sloan Asst. Prof. Andrey Malenko

The market for corporate control is staggeringly large. In 2007 alone, the value of M&A transactions in the world was $4.8 trillion. Even in the wake of the economic crisis, it’s still a very active market with many complex features.

One of these features is the type of bidders involved in a corporate takeover auction. They fall into two categories: Strategic bidders such as competitors who are looking for long-term operational synergies, and financial bidders such as private equity firms and divisions of investment banks. Financial bidders are looking for financial synergies as well as for undervalued companies with the potential to improve operations.

Read More »