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JB Hi-Fi Share Value Rockets, CEO Comments on ACCC Ruling

JB HI Fi shares are sitting at $27 this morning after rising 2% yesterday, the rise follows the announcement by the Australian Competition and Consumer Commission, that they saw no threat to a potential merger of The Good Guys.

Several analysts claim that the market is now factoring in an acquisition of the Melbourne base retailer by JB Hi-Fi.

Late yesterday Richard Murray the CEO of JB Hi-Fi issued a statement to the stock exchange claiming that JB Hi-Fi 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.

He went on to say that JB Hi-Fi understands that The Good Guys are looking at a range of options including an IPO on the ASX.

He added that JB Hi-Fi is continuing to evaluate all possible opportunities against a range of factors and would only pursue an acquisition if it made compelling financial sense for its shareholders.

According to Citi Equity analysts the acquisition of The Good Guys is valued at around $900 million however management at The Good Guys believed to be pushing for an IPO as they believe the business could raise over $1 billion if it is taken to the market.

At this stage it is believed that the Muir family who own The Good Guys has two choices and IPO or sale to JB Hi Fi.

ChannelNews understands that Steinhoff International are no longer interested in bidding for The Good Guys after moving late last week to invest over $3 billion in the acquisition of a US mattress company. This South African company also acquired a UK company for $1 billion a month prior.

Despite these acquisitions Citi’s research team told clients on Wednesday, that the acquisitive South African Steinhoff International and the initial public offering market remain potential bidders.

“Steinhoff has proven aggressive in recent acquisition attempts, consistently paying 10 to 11 times EV/EBITDA (implies circa $1 billion to $1.2 billion acquisition price) for complementary acquisitions,” Citi analyst Bryan Raymond wrote.

“Despite recent large acquisitions, Steinhoff continues to have balance sheet capacity to debt fund a Good Guys acquisition.” Said Raymond.

Expectations for a successful Good Guys acquisition have driven JB Hi-Fi earnings multiples to near peak-cycle levels as revenue and earnings for the industry also are at or near a cyclical peak.

Business Journalist Stepen Bartholemusz, writing in the Australian said that an acquisition of The Good Guys would dramatically accelerate and deepen JB’s expansion into appliances, giving it a big presence in the higher-margin and more resilient large appliance segments and enhanced scale and buying power in small appliances and consumer electronics, where there is some overlap in the offers. The potential to expand The Good Guys network would add another layer of potential organic growth.

To get there, however, may not be straightforward. Some of The Good Guys’ growth potential would inevitably be capitalised into its pricing in an IPO, so JB would have to put something on the table that the Muir family regarded as clearly more attractive than the longer term value that an exposure to a listed business might produce.

Analysts are tipping that JB hi-fi will announce “another “excellent” result on Monday when they report their year-end results.

Macquarie Capital is advising JB Hi-Fi.

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