Posts Tagged ‘takeover’

Reader quiz: likelihood of takeover

Monday, August 17th, 2009

Today, we will give our readers a simple quiz.

Last month, Eureka Report released an article titled “Top Ten Takeover Target.” The article goes like this:

PORTFOLIO POINT: What are the most likely takeover targets for the year ahead? Here?s my list.

Will BHP come back for Rio? Will Kerry Stokes go the whole way and make an audacious bid for the
Packer family’s Consolidated Media.

It’s never easy picking takeover targets in advance, but neither it is impossible. Over the years I have devised certain criteria that I hope you’ll find useful. There are some obvious factors, such as a wave of pending consolidation; and others that might not be too obvious to the untrained eye, such as ?lazy? balance sheets.

The six main criteria I use to select takeover targets are:

  • The presence of a strategic shareholding on its register.
  • Industry consolidation taking place.
  • Substantial changes to the legislative or regulatory environment.
  • The occurrence of a previous (and unsuccessful) bid for the company in question.
  • Monopolistic and/or duopolistic industry structures.
  • Underutilised balance sheets and strong cash flows.

Of the six, I find that the presence of strategic shareholdings is the strongest predictor of corporate activity; in fact, since 2000 about 60% of listed Australian companies receiving takeover bids had such strategic shareholders already on their register, even though only about 20% of total companies in the ASX 300 index fulfil this condition.

So putting these criteria together and overlaying them on Australian stockmarket, what do you get?

Here then are my top 10 takeover targets (in no particular order) for the year ahead:

Let’s say you searched high and low for a company in the stock market. Finally, you found company XYZ that fulfils each one of the six criteria.

Our question to you is: how likely (expressed as a percentage) is company XYZ going to be taken over?