By Tom Ryan
According to a report in the New York Post, Best Buy is reviewing a potential merger with RadioShack, which is said to be looking for a buyer. Both Best Buy and RadioShack said they don't respond to market speculation.
A purchase of RadioShack would boost Best Buy's efforts to capitalize on fast-growing demand for smartphones and other wireless gadgets. Best Buy Mobile departments have been added inside its stores but the retailer has also been slowly testing and rolling out stand-alone Best Buy Mobile stores over the last three years.
"This is all about handheld devices," one banking source told the Post of the acquisition talks. "A whole new wave of these products are coming out and they're going to break the monopoly of the carriers," whose market power has hurt RadioShack's profits in the past.
Best Buy ended 2009 with 74 Best Buy Mobile stores, which range from 1,000 to 1,200 square feet, and it currently has 77. Last week, it announced plans to open 75 to 100 small stores, primarily Best Buy Mobile stores, in the U.S. this year.
RadioShack has more than 6,000 stores. Last month, it said higher sales of cell phones and coverage plans drove fourth-quarter profit ahead 26 percent. In the quarter, it added T-Mobile to its list of carriers, and also said sales were higher for Sprint Nextel cell plans and for prepaid phones and airtime. Last October, it launched a pilot mobility kiosk program in about 100 Target stores. And just last week, RadioShack said it will begin selling Apple iPhones nationwide under a special pricing campaign, which will make it the second-largest iPhone retailer after Wal-Mart.
Other options RadioShack may explore, investment bankers told the Post, are a sale to a private-equity buyer, a massive share buyback or a strategic acquisition of its own.
Discussion Questions: What do you think of a potential Best Buy acquisition of RadioShack? How would you rate the mobile phone and wireless coverage opportunity for retailers overall?