Retail giant JB Hi-Fi Limited (ASX: JBH) has been given the all-clear in its pursuit to acquire rival The Good Guys, which could significantly enhance its share of the Australian electronics market.
JB Hi-Fi's shares soared as much as 4% to a new all-time high of $27.52 this morning, although they were trading 2% higher at $27.00 at the time of writing.
In an update this morning, the ACCC said "Based on extensive market 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."
JB Hi-Fi is already one of Australia's largest specialty electronics retailers, selling items such as televisions and surround sound products, together with DVDs, CDs and Blu-ray discs. The company is even selling drones, which are growing in popularity around the world.
However, the company is also rapidly expanding in the white goods market through its 'HOME' format stores. The Good Guys is also dominant in that field and would thus improve JB Hi-Fi's competitive position within the space – particularly if it was also able to achieve synergies by combining the two chains.
That said, a deal is by no means certain to go ahead. In an announcement to the market today, JB Hi-Fi said it "continues to participate in the sale process but has made no decision and nor has it entered into any agreement with respect to an acquisition of The Good Guys. JB Hi-Fi understands that The Good Guys are looking at a range of options including an IPO."
An IPO, or initial public offering, is certainly one option that The Good Guys' management team is said to be keen on, although the recent demise of Dick Smith and the lacklustre IPO of fellow electronics retailer Kogan.com Ltd (ASX: KGN) could deter it from that path.
What's more, now that JB Hi-Fi has been given clearance to pursue an acquisition, its major rival Harvey Norman Holdings Limited (ASX: HVN) could also look to make a bid. Not only could this mean that Harvey Norman would gain that extra market share, the additional interest could also spark something of a bidding war.
That's what investors don't want. History is littered with occasions where companies have made inadvisable acquisitions that either cost too much or didn't fit the mould of their own businesses, which have ultimately destroyed shareholder wealth. Indeed, overpaying could completely eradicate the benefits of any synergies from acquiring the business.
Thankfully, JB Hi-Fi is believed to have launched a bid for The Good Guys in the past, but refused to deal based on the notion that The Good Guys' management team was asking for too much money. That suggests that JB Hi-Fi will only pay what it believes makes sense for investors, so long as it doesn't get carried away in a bidding war to stop a rival (such as Harvey Norman) from attaining it.
