JB Hi-Fi is scoping out The Good Guys for a possible takeover but analysts question whether the home entertainment retailer would meet the whitegoods giant's asking price.
JB Hi-Fi confirmed on Thursday that talks have been held with The Good Guys but said there has been no agreement or decision made about an acquisition.
"At this stage, discussions between JB Hi-Fi and The Good Guys are preliminary and exploratory in nature," Thursday's statement said.
The Good Guys announced in April that they would explore an initial public offer and listing on the Australian share market.
A spokeswoman for the home appliance retailer told AAP The Good Guys were close to appointing lead managers for an IPO but declined to comment on whether the company was interested in a takeover offer from JB Hi-Fi.
Morningstar retail analyst Farina Parsons said The Good Guys would not come at a discount and there was speculation they wanted as much as $1.5 billion while JB Hi-Fi was offering up to $800 million.
"JB Hi-Fi has the capacity to buy them but at what price is the question," she said.
"I doubt they will be able to pick The Good Guys up at a cheap price."
Market analyst Ben Le Brun, from optionsXpress, said it was unclear whether JB Hi-Fi could afford the takeover, or whether it will have to turn to investors.
"The Good Guys are expected to get away with one of the biggest IPOs in Australia," he said.
"What we are not sure about is JB Hi-Fi's balance sheet; whether they can afford this straight off the bat or they'll have to tap investors."
He said if The Good Guys proceeded with the IPO, then he suspected it would attract a decent premium to its competitors given JB Hi-Fi have, in effect, shown their hand.
The Good Guys generates about $2 billion a year in sales and employs more than 4000 people across its 100 stores.
Investors showed support for JB Hi-Fi's possible takeover bid with the retailer's share price closing 77 cents higher, or 3.37 per cent, at $23.63.
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