JB Hi-Fi Limited to buy The Good Guys for $870 million: What you need to know

Credit: Peter Heath

JB Hi-Fi Limited (ASX: JBH) has officially announced it will acquire its rival The Good Guys for $870 million after it recently received the all-clear from the competition watchdog to do so.

By combining the two businesses, JB Hi-Fi will enhance its dominance in Australia’s electronics retail industry. It estimates that it will control a whopping 29% of the home appliances market (with The Good Guys already commanding 26% of that market), whilst also controlling 24% of the consumer electronics category. By comparison, primary rival Harvey Norman Holdings Limited (ASX: HVN) would control 24% and 15% of those categories, respectively.

On the acquisition, JB Hi-Fi’s CEO Richard Murray said: “The acquisition is a very attractive strategic opportunity for JB Hi-Fi since The Good Guys is a highly complementary business which is aligned with our management philosophy and significantly enhances our offering in the $4.6 billion home appliances market.”

The acquisition will also provide JB Hi-Fi with immediate scale as well as a more diversified product mix. Had The Good Guys been part of the JB Hi-Fi group during the latest financial year (ended 30 June, 2016), the two could have combined for just over $6 billion in sales, with The Good Guys contributing $2.1 billion on its own.

The acquisition

JB Hi-Fi will pay $870 million in cash for the business, which it expects will be 11.6% earnings per share (EPS) accretive. The deal also valued The Good Guys’ enterprise value at 11.7x earnings before interest and tax – compared to JB Hi-Fi which traded on 13.2x as at 12 September.

Synergies between $15 million and $20 million per annum after a three-year integration period are expected, with implementation costs tipped to fall in the range of $10 million to $12 million – predominantly in the first 12 months post acquisition.

Indeed, JB Hi-Fi will need to raise equity from shareholders in order to help fund the deal. As part of an entitlement offer, shareholders will be invited to purchase one new JB Hi-Fi share for a price of $26.20 for every 6.6 in existing shares held. It hopes to raise $394 million via the entitlement offer, with the remainder of the acquisition coming from new and existing debt facilities.


JB Hi-Fi also took the opportunity to update the market on its progress so far in the new financial year. Comparable sales have experienced a strong uptick since the beginning of July, rising 7.7% (compared to 5.7% in the same period last year), with the recent closure of Dick Smith providing some of that boost. It reaffirmed its guidance for sales of around $4.25 billion (excluding The Good Guys).

The Good Guys, on the other hand, isn’t expected to grow sales or earnings in the 2017 financial year due to it being in the early stages of a Joint Venture Partners transition process. It should resume growth after this financial year.

Foolish takeaway

JB Hi-Fi has had its eye on The Good Guys for a number of years, and has finally found a reasonable deal at which to strike. The two businesses are highly complementary and, if integrated properly, have the potential to create plenty of value for shareholders.

JB Hi-Fi’s shares will remain in a trading halt until the opening of trade on Friday and were last fetching $28.85. That was 8.7% below their recent all-time high price of $31.59, but still well above their price from the beginning of this year.

Discover How 1 Man Made 100x His Money After 50

Few know, that as Warren Buffett blew out the candles on his 50th birthday cake, he had just 1% of his current fortune. Think about it: At an age when most give up hope, Buffett was just getting started on the remaining 99% of his fortune. Goes to show you that it's never too late for you to potentially get rich. Which is why we've gathered the strategies we learned from Buffett, distilled them down to 11 simple lessons, and put it in an exclusive report for you to claim. Just click here to learn more about this handy investing guide.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.