There's nothing like the rekindling of takeover talk to fire up a share price.
Embattled engineering contractor UGL Limited (ASX: UGL) shot up 9.9% this morning to a six-month high of $2.45 after the Australian Financial Review reported that a "large private equity firm" and another engineering contractor have been sounding out shareholders about a takeover offer in recent months.
There's nothing new in that report since I wrote about UGL's takeover speculation more than a month ago when I called the stock "cheap".
Since then, the stock has surged 55% and it doesn't look like a bargain anymore.
Potential bidders could share my sentiment but takeover hopes will be playing in the background and this is likely to put a floor on the stock over the short term at least.
What will also be interesting to watch are other "second chance" takeover targets in the sector.
I am referring to listed contractor Bradken Limited (ASX: BKN) and labour hire company Skilled Group Ltd. (ASX: SKE), as they have both received offers in recent months.
Bradken was approached by private equity group Pacific Equity Partners and US conglomerate Koch, which were offering $2.50 a share for the company.
Management rejected the offer as being too low and refused to engage with the bidders. That's a mistake and shareholders will hope Bradken doesn't end up like copper miner PanAust Limited (ASX: PNA) as it rejected a higher offer only to be forced to accept a lower offer months down the track.
Skilled Group also got a bite from rival Programmed Maintenance Services Limited (ASX: PRG) earlier this year, which it too rejected.
The biggest contractor that could attract a takeover bid is Worleyparsons Limited (ASX: WOR). Its share price spiked last month to a 2015 high of $11.85 and it got a "please explain" speeding ticket from the ASX.
Management said it had nothing to disclose and the stock has drifted lower to around $10 since.
In this age of record low interest rates, one shouldn't be dismissive of a chance that this $2.5 billion market cap gorilla could get swallowed.
