Written on the 11 August 2016 by Nick Nichols

THE competition watchdog has cleared JB Hi Fi (ASX:JBH) to pursue a takeover of The Good Guys, although the electronic goods retailer says it has yet to make an offer for its rival.

In a statement to the Australian Securities Exchange, JB Hi Fi repeated a statement made in May when the takeover proposal was first confirmed.

"JB Hi Fi continues to participate in the sale process, but has made no decision and nor has entered into any agreement with respect to an acquisition of The Good Guys," says CEO Richard Murray in the statement.

"JB Hi Fi evaluates all possible opportunities against a range of factors and would only pursue an acquisition if it made compelling financial sense for its shareholders."

When JB Hi Fi first indicated plans to buy The Good Guys, one market analyst forecast the buyout could be worth as much as $1.5 billion. However, it is understood JB Hi Fi is only willing to pay $800 million.

The Good Guys has annual revenue of $2 billion from a network of 100 stores, while JB Hi Fi posted sales of $3.6 billion in FY15. JB's revenue surged 7.7 per cent to $2.1 billion in the first half of FY16.

The company's shares have risen about 10 per cent since the takeover announcement in May, and they rose more than 3 per cent in early trading following the announcement by the Australian Competition and Consumer Commission.

The ACCC says it will not oppose the deal should a deal eventuate. It says the purchase will not diminish competition as there is a range of alternative retailers in the market, arguing that The Good Guys' biggest competitor is Harvey Norman and not JB Hi Fi.

"JB Hi-Fi has traditionally focused on selling consumer electronics, with stores located mostly in shopping centres or CBDs," says ACCC chairman Rod Simms.

"On the other hand, The Good Guys has mostly focused on whitegoods and other home appliances, with stores generally located in home centres or similar locations.

"Other retailers such as Harvey Norman have a much higher degree of overlap with the Good Guys than JB Hi-Fi.

"However, JB Hi-Fi and the Good Guys are clearly in competition with each other to a degree. The ACCC focused its investigation on high-value consumer electronics and home appliances, particularly televisions, where there is the greatest overlap between the Good Guys and JB Hi-Fi."

The ACCC decision also took into account the new JB Hi-Fi Home initiative by JB Hi Fi which is specifically aimed at tackling Harvey Norman, the market leader in home appliances and electronics.

"On balance, the ACCC did not consider that the acquisition would substantially lessen competition in any market," says Sims.

"We considered that the combined company would continue to face strong competition from Harvey Norman and other existing retailers such as Betta, Retravision, Bing Lee and Radio Rentals.

"For lower value and smaller items, we considered that consumers have a range of alternatives, including online suppliers and discount department stores."

Author: Nick Nichols





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