It was the best ‘non-story in Australian business for months – JB Hi-Fi’s (JBH) aspirations to buy smaller rival, The Good Guys had been whispered for months, but firmed up six weeks ago, culminating in clearance for any bid (which hadn’t emerged) from the competition regulator, the ACCC.
JB Hi–Fi seemed to be stalking The Good Guys while the owners rationalised and sorted out the structure and ownership, and then investigated a stockmarket float.
Late last week more rumours had JB announcing a share issue yesterday to help finance the deal – but then that route seemed to be blocked by Wall Street’s big slide on Friday night, our time, and the Australian market’s swoon on Monday.
But then Wall Street rebounded, shaking off the new found gloom and JB Hi-Fi proceeded to launch its $870 million offer for The Good Guys and $300 million plus issue to big institutional shareholders.
“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 appliance market,” CEO, Richard Murray said in a statement yesterday.
The takeover will be funded by a $394 million equity raising, through retail and institutional entitlement offers of about 15 million new shares, and $500 million from new and existing debt facilities.
JB Hi-Fi said combining the companies would deliver synergies of between $15 million and $20 million a year after three years, excluding implementation costs. The deal would grow earnings per share by about 11% this year, before takeover costs, it said.
The Good Guys was founded in 1952 and originally traded as Mighty Muirs, after its founder Ian Muir, whose family has retained ownership of the chain. The Good Guys’ CEO, Michael Ford, will continue to lead the chain under JB Hi-Fi’s ownership.
The institutional entitlement offer will opened yesterday and closes today (Wednesday). A retail offer opens next Wednesday, with eligible shareholders able to subscribe for one new JB Hi-Fi share at $26.20 – a 9.2% discount on Monday’s closing price ($28.88) – for every 6.6 existing shares.
The deal strengthens JB Hi-Fi’s presence in the $4.6 billion home appliances market where Harvey Norman is a major player, along with Bing Lee. The deal will add The Good Guys’ 101 stores to JB Hi-Fi’s existing network of 295 stores across Australia and New Zealand.
The whitegoods retailer generated $2.09 billion in sales last financial year, with before-tax earnings of $74.2 million. JB Hi-Fi’s revenue was $3.95 billion last year, with earnings before interest and tax (EBIT) of $221.2 million.
The combined revenue would put the two chains ahead of Harvey Norman, which generated $5.33 billion of retail sales. But harvey Norman would be more profitable – it had EBIT of $522.5 million.
A spokeswoman for JB Hi-Fi said no jobs would go “at this stage” and the savings will come through a “combination of buying synergies, logistics and supply chain efficiencies, procurement synergies and support function efficiencies”.
