- The Good Guys are up for sale
- A chance for Woolies or Wesfarmers?
- The business could bolster either's hardware chains


By Greg Peel

Come in a see the Good, Good, Good Guys / Pay cash and we'll slash low prices. Brain Wilson's poor old drug-addled mind must ache every time his iconic song is butchered on these remorseless ads, particularly given the publishing rights were sold out from under him years ago. The news is, however, that The Good Guys major stake holder Muir Investments has put this investment up for sale.

That TGG should be feeling the pinch in the current Australian retail environment should come as no surprise. Retailers of any form of electrical goods are struggling as price deflation and weak consumer demand offset any otherwise margin-positive benefit of a strong Aussie dollar. TGG's commitment is that the lowest ticket price for a product on offer elsewhere will be matched, and then a further discount will be offered if cash is paid on the spot. Good for cashflow ? bad for profit margins.

On that basis, the analysts at RBS Australia don't hold out a lot of hope Muir will see an attractive multiple offered for its stake. Muir must first exercise the options it holds to buy out the remaining minority independent store operators for starters to complete the package before any corporate interest can be piqued. Realistically, surviving retailers of white goods (fridges, washers etc) and brown goods (TVs, smaller electrical appliances) should be hoping they can pick up some of TGG's market share if Muir struggles to unearth interested parties. JB Hi Fi ((JBH)) and Myer ((MYR)) have already chosen to exit the white good space. But then maybe they should also be very afraid.

An opportunity is on the table, RBS suggests, for either Woolworths ((WOW)) or Wesfarmers ((WES)) to snap up TGG in order to bolster the white goods offerings within their respective hardware franchises of Masters and Bunnings. Ownership would provide previously lacking bargaining strength with suppliers. TGG could be particularly attractive for Woolies given the Masters roll-out has only just begun and the franchise lacks the scale of the incumbent Bunnings. RBS believes Masters needs to beef up its growth prospects over the medium term if it is to be successful.

Just as Woolies has a corporate relationship with US retail giant Wal-Mart, TGG has a relationship with similar US operation Best Buy, even to the point a Best Buy representative sits on the TGG board. To that end, RBS suggests an obvious third suitor for TGG is Best Buy itself, given the franchise could become more competitive with Best Buy's global buying power and retail innovation.

Other white and brown good retailers should thus be afraid because a purchase by any one of the three prospects means trouble. A sale to Best Buy would likely mean a strengthening of TGG's position. And we know how independent retailers of petrol and alcohol fared when Woolies and Coles moved in to those markets.

Investors in Woolies may be excited about the prospect nevertheless, given the significant cost involved in taking on the well-entrenched Bunnings chain. Any kick-start would help. Investors in Wesfarmers may need to hope Woolies is headed off at the pass.

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