JB Hi-Fi has announced that it has entered into a binding agreement to buy whitegoods retailer Good Guys for $870 million, acquiring 100 per cent of its privately-held competitor. The deal will see both retail chains continue largely separately in the eyes of customers, but behind the scenes will mean the two are more efficient, potentially driving prices down for consumers.
JB Hi-Fi is a giant in the consumer electronics market, and Good Guys is one of the main names in home appliances, although the two do have similar interests in appliance brands like Dyson and Miele, as well as consumer electronics brands that also make appliances like LG and Samsung. One in three JB Hi-Fi stores are from the company’s ‘HOME’ arm, which are very similar in their range of stock offerings to Good Guys, and occupy competitive retail space in some locations.
The deal will likely mean that JB will be pushed out of the National Associated Retail Traders of Australia, an industry group made up of smaller retailers like Appliances Online and Bing Lee. JB Hi-Fi and The Good Guys’ combined size will give it significantly more buying and bargaining power than many NARTA members.
JB Hi-Fi will own nearly 300 stores in Australia and New Zealand after the purchase goes through, and increased scale of the JB Hi-Fi and Good Guys conglomerate’s combined supply chains should translate to lower prices for consumers on popular electronics. The ACCC gave JB the all-clear to go after Good Guys despite those two chains being somewhat in competition and sharing competitive retail space, saying other stores like Harvey Norman offered a more significant concern for overlap.
JB is buying Good Guys at a good time for the company; JB’s sales growth is up 11.6 per cent on the back of its chief competitor Dick Smith closing shop late last financial year, with JB saying that change will “continue to drive sales growth” through the first half of FY17, but will moderate over time. The “highly complementary customer bases” of JB and Good Guys — customers that shop based on price, and that are looking for certain brands of electronics — should propel JB’s continued success within home appliances.
JB had originally planned to buy back almost 430,000 shares in the late half of the FY16 financial year, but “no longer intends” undertaking that move. The company entered a trading halt today before the news was announced, with trading to recommence on Friday. JB Hi-Fi will fund the deal using $450 million in debt and $394 million raised from the issuing of 15 million new shares diluted from its current standing, both to existing shareholders invited to purchase more and to the stock exchange more generally.
JB Hi-Fi CEO Richard Murray said in a statement: “The Good Guys is a high quality Australian retailer with an excellent track record. We are very impressed by what the owners and management have achieved with the business since its establishment and the leading market position they have created. The acquisition is a very attractive strategic opportunity for JB Hi-Fi since The Good Guys is a highly complementary business which is aligned with our management philosophy and significantly enhances our offering in the $4.6 billion home appliances market.
“Importantly, Michael Ford, CEO of The Good Guys, has agreed to continue his leadership The Good Guys under JB Hi-Fi ownership. We are very pleased to welcome Michael and his executive team and look forward to working together to create a market leading consumer electronics and home appliance retail group.”
At the moment, there’s no word as to whether JB Hi-Fi could have got a better price if it paid cash. [ASX]