Amazon + RadioShack = You've Got to Be Kidding

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Earns Radio Shack
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Wall Street loves to play matchmaker, and this week kicked off with SunTrust analyst Bob Peck suggesting that (AMZN) should acquire RadioShack (RSH).

It's not going to happen, but since a seasoned stock analyst is making an impassioned plea for the two to hook up, we may as well address Peck's reasons for why it should happen before offering up the even bigger reasons why it won't.

Let's begin by going over the five reasons Peck thinks these two companies belong together.
  • Amazon has been able to avoid charging and collecting sales tax in states where it doesn't have a physical presence, but that's starting to change as states draft new legislation and Amazon increases the number of its fulfillment centers. In other words, acquiring a retail chain that exposes Amazon to collecting state sales tax is no longer the deal breaker it used to be.
  • The leading e-tailer is starting to gradually expand its AmazonFresh platform of delivered groceries, and Peck argues that this means that Amazon is now focusing on local stores.
  • Stores could serve to showcase Amazon products and services. From displaying Kindles to offering trade-in services, having RadioShack's thousands of stores could help spread the word.
  • Amazon has already started to test digital lockers for customers who can't count on being at home for their deliveries. Stores would be a logical place for customer pick-ups or to arrange local courier deliveries.
  • A local presence would make it easier for Amazon to expand its offerings while also providing third-party sellers with a nearby outlet to make products available.
Peck concedes that he is merely thinking out loud here. His company does not have direct knowledge about Amazon's potential plans for having a local presence. He's just connecting the dots. Well, let's disconnect them.

You Don't Tether Yourself to a Sinking Ship
  • It's true that Amazon is starting to collect sales tax in more and more states, but this would accelerate the process. An acquisition of RadioShack and incorporating it into its infrastructure would find Amazon having to immediately collect sales tax everywhere.
  • As for AmazonFresh, it's hard to fathom what Amazon could achieve in the realm of grocery deliveries with RadioShack's tiny stores. Many are also located in strip malls anchored by supermarket operators, and it's a pretty safe bet that most of them have deals with the landlords to make sure that other tenants are competitors.
  • Showcasing products through RadioShack's 4,400 company-operated stores may seem like a smart move on the surface, but having a local presence didn't help Barnes & Noble (BKS) with its Nook. Besides, Kindle products are already prominently featured at consumer electronics and department stores. If Amazon acquires or creates its own network of local stores, other retailers may start scaling back their support.
In short, even the arguments in favor of acquiring RadioShack sound more like reasons to avoid the transaction once they are fleshed out.

RadioShack Is No Love Shack

We haven't even gotten to the problems with RadioShack itself. This is a retailer that's on the brink of bankruptcy. It hasn't been profitable since 2011, and losses continue to mount.

With creditors fearing that they are going to get clobbered here and the stock trading for about a buck, it's easy to see why stakeholders would be open to a buyout scenario. It's just not going to happen from Amazon. CEO Jeff Bezos is a risk taker, but he doesn't make stupid wagers. He doesn't need RadioShack for anything that he may dream up at the local level, and that's something that Amazon shareholders should be happy about.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of and Barnes & Noble. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.
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