The market recently noted the Australian Competition and Consumer Commission (ACCC) giving a thumbs up for JB Hi-Fi Limited’s (ASX: JBH) acquisition move for The Good Guys. The key reasons outlined for no rejection are given herein below:
Expansion of product categories and customers:ACCC has reviewed the proposed acquisition move by JBH, and concluded that merged entity would expand the product offerings and customer base. JB Hi-Fi focuses on consumer electronics, at stores at shopping centers or CBDs. Meanwhile, The Good Guys focus on whitegoods and other home appliances, and exist mainly at home centers or similar locations. So the acquisition would expand the stores presence as well as enhance the product range offered to customers. Given the home appliances market in Australia to be over $4.6 billion, which is higher against other categories, JBH’s acquisition of The Good Guys would expand its business. JBH forecasts over 70 HOME stores at the end of FY17 and 75 HOME stores to be in FY18. Meanwhile, the group confirmed that they continue to participate in The Good Guys sale process, as of ASX release on 11 August 2016. The Good Guys is pursuing several options including an IPO on the ASX. However, the group backed shareholders and said that they would continue to pursue possible growth opportunities to generate value to them.
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JB Hi-Fi Limited’s Business model (Source: Company Reports)
Despite forming a large player, the merged entity would continue to face competition: ACCC’s main concern was whether the JB Hi-Fi’s acquisition of The Good Guys could lead to a potential decrease in competition. But, ACCC confirmed that the acquisition would not decrease the competition in any market. The merged entity would face solid strong competition from Harvey Norman and other current retailers like Betta, Retravision, Bing Lee and Radio Rentals. On the other side, JB Hi-Fi offered several Home stores with wider range of home appliances, which was already competing more directly with the Good Guys. The group delivered a decent fiscal year of 2016 performance, and opened nine new stores during the year. JBH estimates to open seven new stores in FY17. The group is also improving its online sales performance for FY16 which grew by 35.8% on the prior corresponding period to $119.1m or 3.0% of total sales. Unique visitors to JB HI-FI’s websites averaged 1.3 million per week in FY16, and reached a peak of 2.3 million during Christmas 2015.
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Expanding Store portfolio (Source: Company Reports)
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