JB Hi-Fi poised to pounce on Good Guys’ whitegoods

JB Hi-Fi

Electronics retailer JB Hi-Fi will make a much-anticipated swoop on whitegoods chain The Good Guys next week in an $850 million-$900m deal set to radically expand its market share and pile pressure on archrival Harvey Norman.

The advance on The Good Guys, first reported yesterday by The Australian’s BusinessNow blog, ends any hope of an initial public offering.

Instead, fund managers who had been briefed about The Good Guys’ prospects as a listed entity are now bracing for a $300m equity raise by JB Hi-Fi as the retailer looks to shareholders to help fund one of the biggest acquisition’s undertaken since its inception in 1974 by John Barbuto.

As flagged by this column last month, Macquarie, JB Hi-Fi’s long-term adviser, is in line to execute the raise, which is likely to be structured as a rights issue, with investors betting the deal will be priced at a narrow discount given the stock’s 29.5c rally over the past three months.

While sources close to the discussions stressed a contract has yet to be signed between the two parties, negotiations are almost at a close as lawyers oversee final adjustments to the sales documents.

JB Hi-Fi said in a statement to the ASX today it’s continuing discussions with The Good Guys over a possible acquisition, but had made no decision yet. “JB Hi-Fi understands that The Good Guys continues to assess an IPO on the ASX,” it said.

The imminent transaction promises to intensify competition between the two dominant players in the market, JB Hi-Fi and Harvey Norman, and comes as lawyers yesterday continued to pick over the carcass of a former competitor, Dick Smith in the NSW Supreme Court.

The legal interrogation is the latest phase in a lengthy forensic examination in to events leading up to the retailer’s collapse.

For JB Hi-Fi, however, Dick Smith’s demise in January has provided another fillip to its earnings amid a four-year house-price boom.

The retailer, led by chief executive Richard Murray, was widely viewed as one of the top-performing companies over the recent reporting season after beating analysts’ forecasts with a net profit of $152.2m.

Yet while its stellar results set its shares soaring analysts at
Citi cautioned the stock appeared to be overpriced with the market factoring in a successful tilt at The Good Guys.

Mr Murray confirmed in July that JB Hi-Fi was pursuing the chain, which is principally controlled by the wealthy Muir family. The decision to offload the business to a trade buyer demolishes any hopes of a hefty fee carve-up among the three investment banks leading a mooted IPO. Goldman Sachs, UBS and Credit Suisse all won a slot on the ticket earlier this year.

But it is Bank of America Merrill Lynch that has prevailed. The US-based bank had been advising The Good Guys for months.