Electronics retailer JB Hi-Fi [ASX:JBH] is looking to become even bigger. This morning the company announced their plans to bid for The Good Guys business. JBH is already a $2.63 billion dollar business. And they have their own home appliance section in stores.
Yet being one of the top retailers in Australia doesn’t seem to be enough. Earlier this year, in May, JBH announced their plans for a potential The Good Guys takeover. This morning they announced that the competition watch dog, the ACCC, wouldn’t block their bid.
The ACCC’s job is to make sure companies don’t get too big. If they do, monopolies might arise, unfairly raising prices for consumers.
But, don’t JBH and The Good Guys sell the same stuff? Both sell home appliances. And both are retailers who provide electronic goods to consumers.
However, in a news release, the ACCC stated that:
‘Based on extensive feedback and other industry information, the ACCC concluded that JB Hi-Fi and the Good Guys generally focus on different product categories and customers. The ACCC also found that post-acquisition, customers would have a range of alternative retailers of home appliances and consumer electronics.’
But while their product focus might be slightly different, the ACCC didn’t deny that both businesses overlapped to an extent.
‘JB Hi-Fi and the Good Guys are clearly in competition with each other to a degree. The ACCC focussed its investigation on high-value consumer electronics and home appliances, particularly televisions, where there is the greatest overlap between the Good Guys and JB Hi-Fi.’
While JBH has continued to participate in the sales process, they have not made a clear decision as of yet. JBH understands that The Good Guys are looking at a range of options. They may even be looking at an initial public offering (IPO) on the ASX.
But as you might expect, the company stated they would ‘evaluate all possible opportunities against a range of factors and would only pursue an acquisition if it made compelling financial sense for its shareholders.’
JBH’s share price opened 3% higher this morning, to $27.24 per share. Shares continued to trade higher, to $27.49. However, the share price has receded since then. The reason for such a lacklustre climb is because a potential acquisition was already mentioned in May. The market simply priced in that possibility back then.
But if JBH does end up taking over The Good Guys, you might see share prices soar much higher.
Junior Analyst, Money Morning
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