RadioShack's Best News

On the vast island of forgotten retailers, few were hit harder by technological disruption than RadioShack (NYSE: RSH  ) . The company made its mint selling products such as answering machines, calculators, and other things you have on your iPhone and will never buy separately again. Over the past few years, its stores have languished and management has tried every trick in the book to plug the hole in the bottom of its business model -- employee reductions, store renovations, store closures, strategic partnerships, exploring strategic alternatives, etc. Today, the company's strongest asset is its real estate, which is actually great. RadioShack is an aristocrat of the strip mall universe, holding its place in the corner next to laundromats and liquor stores from one coast to the other. Now the company has picked up another valuable asset -- Jamie Zimmerman.

Rejoice! 
The special situations expert recently took an 8.1% position in the company. Zimmerman's event-driven Litespeed Management hedge fund is well-versed in the areas of distressed debt, mergers, and bankruptcy. Her substantial interest in RadioShack at least points to pending action at the ailing retailer.

RadioShack management has not been sitting idly by while the situation erodes; the company has a seasoned turnaround expert at the helm and is pulling out all the stops to make this thing work. CEO Joe Magnacca helped steer pharmacy giant Walgreen into sunny days with moves such as the successful integration of Duane Reade. Magnacca cut the number of items on RadioShack shelves down substantially as part of a merchandising overhaul.

The problem was, customers weren't so much dissatisfied with the stores as they just didn't have a reason to enter one. RadioShack is associated with yesterday.

What now?
Given that the stock recently hit its 52-week low and looks nearly hopeless, deep-value buyout sharks could be circling RadioShack. Any buyer would have to account for the company's aforementioned real estate portfolio and likely award investors a good premium to today's price.

It's also possible that Zimmerman sees the operating business pulling itself out of the rough, but that seems less likely. A quick glance at Litespeed Management's betting history shows a series of minimum-to-zero downside risk scenarios. Her firm's investment in HIT Entertainment, the debt-laden company that owned brands such as Barney and Bob the Builder, was built upon the company's liquidation value. Zimmerman assumed HIT was going bankrupt (it was bought by Mattel instead), and knew she could earn her money when the brands were sold off.

Zimmerman's vote of confidence in RadioShack is the most compelling piece of news to come near the company in a long time. Whatever the star fund manager sees in the company, whether it's zero downside or attractive upside, retail investors may want to have a look.

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