Sprint, RadioShack win court approval for retailer to stay afloat, co-brand 1,740 stores

RadioShack won approval from a U.S. bankruptcy court to stay in business and co-brand around 1,740 of its stores with Sprint (NYSE: S). The deal, a last-minute reprieve for the troubled retailer, will also significantly benefit Sprint, which stands to more than double its retail presence as a result.

The approval comes a little less than two months after RadioShack filed for Chapter 11 bankruptcy protection and just before RadioShack would have been in dire financial straits. The company did not have the spare cash on hand to cover April rent at its stores, according to the Wall Street Journal. The agreement is not yet final.

For RadioShack, the deal will let the 94-year-old retailing operation survive in an age when it has been overtaken by other, larger retailers like Walmart as well as online retailers like Amazon (NASDAQ: AMZN). RadioShack had around 4,000 stores but was weighed down with inescapable debt obligations and weakening sales.

U.S. Bankruptcy Judge Brendan Shannon approved a sale of the stores to the Standard General hedge fund, which plans to keep most of the stores open. Sprint will occupy around one-third of the space in each store, according to Bloomberg. Further, the deal will likely preserve around 7,500 jobs.

The Standard General deal had been called into question after RadioShack's biggest creditor, Salus Capital Partners, said on Friday said it would make a better offer over the weekend, to improve upon an earlier offer. The new bid from Salus never came. Salus fought the offer from Standard General, arguing that the auction for RadioShack's assets was a sham and that its own earlier offer was superior. However, RadioShack said Standard General's offer was $56 million better, despite the fact that, as Reuters notes, most of it would be paid in the form of debt forgiveness rather than cash.

"The going-concern bid from Standard General is clearly economically superior to the liquidation bid even before taking into account the added and terribly important benefit of preserving over 7,000 jobs and saving a century-old American retailing icon," Shannon said in his ruling, according to Bloomberg.

Sprint spokesman Doug Duvall said that the carrier did not yet have a formal comment because the deal is not yet final. Prior to the RadioShack deal, Sprint owned around 1,100 retail stores. Thanks to the RadioShack deal, Sprint is likely to surpass the number of stores T-Mobile US (NYSE:TMUS) owns. During Sprint's quarterly earnings conference call in early February, Sprint CEO Marcelo Claure said Sprint currently owns 500-600 fewer stores than T-Mobile does.

"We've proven that our products and new offers drive traffic to stores, and this agreement would allow Sprint to grow branded distribution quickly and cost-effectively in prime locations," Claure said in a statement at the time. "Sprint and RadioShack expect to benefit from operational efficiencies and by cross-marketing to each other's customers."

For more:
- see this Reuters article
- see this WSJ article (sub. req.)
- see this Bloomberg article

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