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RadioShack surges on merger speculation

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- RadioShack's stock price surged on speculation that the retailer might be headed for a merger, or seeking another type of deal with potential investors.

The stock for RadioShack (RSH), an electronics retailer based in Fort Worth, Texas, jumped 9% in midday trading on Friday.

Anthony Chukumba, analyst for BB&T Capital Markets, said the surge was "definitely" the result of a New York Post story speculating that the company is looking to merge with Best Buy (BBY, Fortune 500), or exploring a leveraged buyout with investors.

"I guess there was some talk about this a few weeks ago and it looks like it's rearing its head again," said Chukumba. "People probably think there's some credence to this."

But the analyst described a potential merger with Best Buy as "extremely unlikely," because the big box retailer already has a partnership with Carphone Warehouse, giving it exposure to the wireless business and eliminating any benefits from a merger with RadioShack.

"There's no good strategic buyer for RadioShack," Chukumba said. "Who would buy them? I would say there's a higher probability of a leveraged buyout than a strategic buyout."

He said some investors might find the company attractive partly because of recent improvements in the high yield market, and partly because the company has a strong balance sheet, with its $908 million in cash outweighing its $669 million in debt.

But a share buyback remains the greatest possibility for RadioShack, said the analyst, because "that's something that RadioShack, at the snap of its fingers, could do" without having to forge a deal with other companies or investors.

RadioShack spokesman Eric Bruner declined to comment.

"As a matter of policy, we do not discuss market rumors or speculation," he said.

Chukumba does not own RadioShack, but BB&T expects to receive compensation from the company for investment services in the next three months. To top of page

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