When Intangible Assets Are More Valuable than Tangible [e159]

March 4, 2015

Nasir and Matt discuss the bankruptcy auction of Radio Shack and why the intangible assets are being sold separately from the tangible assets.

Full Podcast Transcript

NASIR: All right. Welcome to our business law podcast where we cover business in the news and add our legal twist. My name is Nasir Pasha.

MATT: And I’m Matt—

NASIR: The co-host of the show and…

MATT: And I’m—

NASIR: We have another co-host as well.

MATT: Gosh.

NASIR: And you are…

MATT: Matt Staub.

NASIR: Oh, Matt Staub, that’s right.

MATT: You’re in like a pitch black environment so I can’t see when you’re speaking. Recording in darkness.

NASIR: I’m sorry.

MATT: You’d think we would have gotten it down by now, but I guess not, never will.

NASIR: Someday, we’ll be jiving together, working with each other well.

MATT: Yeah.

NASIR: Someday.

MATT: So, I feel like I just talked about this on the podcast so forgive me, listeners, if I did. But the spot that I usually go to to fill up my gas is right across the street from a RadioShack and I think it’s pretty funny because I thought all the RadioShacks were shut down and that’s, I guess, what we’re talking about today and, regardless of whether the store is doing well – which it isn’t – I recognize the name is a very important name and that’s kind of what’s going on in this bankruptcy auction. They’re segregating the company name and intellectual property. Are they going to sell it off separately from everything else? Stuff like the store leases, et cetera. They expect to get $20 million for it – which, you know, at its prime, RadioShack was worth well over that. But, you know, after they sell that name and the IP, I guess you have your inventory but it’s probably a pretty undesirable leftover of assets, especially those leases.

NASIR: Yeah. Let’s say, first of all, the bids start at $20 million, right? So, let’s say that you’re a company and you buy RadioShack, the name, for $20 million plus, what are you going to do with that thing? I mean, that’s going to be hard to get your money back, I feel.

MATT: Commercial lease is expensive. That’s the way it is and these RadioShacks are going to be fairly good-sized stores, you know. It’s a lot of…

NASIR: Hold on. The name RadioShack is being sold for $20 million. There’s about 1,100 RadioShack leases that are put on sale which seems strange, right? Okay. How can you sell a lease? But, basically, they’re selling the right to assume the lease because that’s a lot, you know, a thousand other leases. That’s a lot of property and being able to get in there by getting that lease assumed might be a good location and so forth.

MATT: Oh, okay.

NASIR: And they may have negotiated some pretty good leases. See, it’s actually separate.

MATT: Oh, sorry. I heard you talking about something. I just assumed you were talking about the leases.

NASIR: Oh. Actually, I assume the same thing. Every time you talk, I just assume you’re talking about leases.

MATT: So, this is a pretty interesting arrangement. We’ve definitely talked about this before how, when you purchase a business, there’s different ways you can do it. I mean, you can purchase – what is it? Is RadioShack a corporation, I would guess?

NASIR: It’s a corp, Delaware.

MATT: You know, you can purchase the stock, you can purchase the assets. There’s different ways of going. When you buy a “business,” there’s different ways of going about it. So, regardless of whether there are value in some of these spaces that they’ve leased out, I mean, I think RadioShack does say, “Hey, you know, our value is in this name,” and, rolling back to my story, you know, I agree with it. I saw the name RadioShack and it still means something to me. Like, I know what that is. I mean, I would never probably go there because I would shop online. But it’s not a shock to people that brand names can have significant value.

NASIR: See, that’s what’s weird is that, once someone buys that name, they won’t be RadioShack. They can do anything they want. They can open up a grocery store under RadioShack, I suppose. I mean, I guess it depends upon the limits between the trademark rights of that particular brand name.

MATT: Yeah.

NASIR: The point is I just don’t get what they’re going to do with it. I mean, even if you put up a website, assuming that radioshack.com comes with that – which I would assume it does because, in theory, the brand name could be separate from the domain name because the domain name is a separate asset. Well, anyway, I’m sure whoever buys it will see.

MATT: Their biggest shareholder is the one who’s going to bid on it – is allegedly the one who’s going to bid on this.

NASIR: Oh, you’re right. So, maybe they just want to resurrect it. That’s very possible. You’re right. That’s probably most likely.

MATT: It has to be something along those lines because, like you were saying, you know, what are you going to do with that? You have this trademark filed for this specific class and then you have the domain name.

NASIR: And it looks like most likely that’s, I mean, I can imagine some outsider buying it. So, most likely, the shareholder’s going to buy it. And so, there’s a lot of different assets that RadioShack could sell and I’m sure that either is bundled up other places. But, like, for example, what about all the customer information? Sometimes, that’s transferrable; sometimes, that’s not, just depending upon the privacy policy of how they obtained that information.

MATT: Oh, yeah.

NASIR: Or their marketing information. You know, they have quite a bit of research and that data could be useful in its independent right. So, there’s a lot of things going on there.

MATT: Yeah, because all it said was the company name and intellectual property which, I mean, the name is intellectual property, right?

NASIR: Yeah.

MATT: What is intellectual property could be many things, you know. I don’t really know what that includes. Why don’t we just bid on it?

NASIR: Yeah, and let’s just wait and see what we get. Maybe they’ll send it to us in the mail – the intangible assets.

MATT: Yeah, get it all delivered. We’re already getting those Red Bulls delivered. We can also get our shipment of intangible assets delivered.

NASIR: I hope they have overnight delivery though.

MATT: Yeah. I just went to radioshack.com. The stuff they’re selling on their front page is just useless.

NASIR: Useless?

MATT: 9-volt batteries?

NASIR: I’m sure they’re selling the inventory, too.

MATT: Yeah. The first spot I worked for was a farming supplies store and, after a few months, it was announced that they were going out of business but a new place was set to open up essentially immediately after the store closed down or soon thereafter and, you know, one of the employees there who’d worked there a long time was considering just buying all the inventory and then reopening with a different brand. So, a lot of the things that RadioShack probably has are things that people would buy, just maybe they’re not the most… I don’t know how many 9-volt batteries you’re selling but it’s…

NASIR: No, you’re right. I don’t know what it is. There’s just a weird stigma behind RadioShack. Like, I’m looking at these things and – you’re right – they’re all things that I would buy but I just don’t feel like buying it from them. I don’t know what it is.

MATT: Well, because you’d just buy everything online pretty much nowadays – not you but just a lot of people.

NASIR: Yeah, I’m just going to buy it for $20 million so I can shut it down.

MATT: Just shut it down? Good purchase.

NASIR: Shut it down.

MATT: Good write-off for the year.

NASIR: Also, good write up. I’ll write about it.

MATT: I’ll set your capital gains.

NASIR: That’s right.

MATT: No joke, I went to radioshack.com and my internet crashed.

NASIR: Great.

MATT: Not saying that had to do with it. But, like, I think the big thing here is the intangible versus tangible assets. So, we were talking about intellectual property, we’re talking about intangible assets and I’d actually be curious to know the value of the tangible assets that they had, just in comparison to that $20 million or approximately $20 million that they’re expecting to get. One of those has to be more valuable than the other for them to do something like that.

NASIR: Yeah.

MATT: There’s a business reason behind that and I guess we’ll maybe keep an eye on this and see what the auctions are.

NASIR: What that includes.

MATT: Yeah.

NASIR: I think most people will be surprised that their brand is worth that much, especially from a dying company.

MATT: Best Buy is obviously still around. But what was the other?

NASIR: I was going to say, like, CompUSA or something.

MATT: Yes, I did a project on Best Buy and we had to do competitors and we did RadioShack, CompUSA, and possibly even hhgregg.

NASIR: Oh, yeah.

MATT: People want to hear this so I’m glad I’m…

NASIR: Go ahead.

MATT: I’m continuing on with it.

NASIR: Tell us more about your homework and homework assignments that you had.

MATT: Yeah.

NASIR: All right, guys. Well, thanks for joining us.

MATT: Keep it sound and keep it smart!

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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