Warrnambool Cheese and Butter (ASX: WBC) has become the latest poster-child for takeover target stocks that have generated huge returns for shareholders. The bidding war for the company is ongoing between Bega Cheese (ASX: BGA), private dairy exporter Murray Goulburn Co-operative, and Canadian giant Saputo (TSE: SAP). Warrnambool's share price has jumped 80% since the first offer on the 12th of September. All investors hope to achieve an 80% return in a couple of months and this had led to renewed enthusiasm by some to try and identify the next Warrnambool Cheese and Butter.
Companies large and small can be subject to takeover offers. Take, for example, the 2008 takeover attempt by BHP Billiton (ASX: BHP) on Rio Tinto (ASX: RIO) as an example of a large takeover, while there are many smaller takeovers that happen regularly such as Perpetual's (ASX: PPT) recent takeover of Trust Co. Below are some companies which may be takeover targets in 2014.
Tabcorp (ASX: TAH): Tabcorp has underperformed its regional and international peers, however having gained around 25% over the past 12 months, it is no longer fundamentally cheap. British bookie William Hill has expressed an interest in acquiring the business to go alongside its recent acquisition of Tom Waterhouse, and any significant dips in the share price may give it, or a rival company, a chance to strike.
Treasury Wine Estates (ASX: TWE): Treasury's share price has dropped by 20% on the back of oversupplying the US market and having to absorb a $160 million loss as a result. The company is well exposed to the growing Chinese market and may provide an opportunity for an overseas investment group willing to spend some money solidifying the group's position in Asia.
Mortgage Choice (ASX: MOC): Award winning mortgage broker, Mortgage Choice, has had a particularly good year as record low interest rates have increased loan volumes and profit. The share price has risen accordingly, up 80% in 12 months, and has attracted the attention of Commonwealth Bank (ASX: CBA) who has taken a 22% stake in the company. The bank may look to add to its stake by making an offer for the remaining shares in the near future.
Foolish takeaways
Investors in the right place at the right time can profit handsomely from companies that are subject to takeover offers. The offers are usually at a premium to the current price and, as seen in the Warrnambool Cheese and Butter case, can sometimes deliver huge returns in a short space of time. The three companies above have had very different 2013s but all have qualities which competitors and investors should find attractive.
Some investors may consider the strategy too risky, especially for companies such as Tabcorp which have struggled to keep up with competitors. Investors more interested in high, growing yields should discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."
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Motley Fool writer Andrew Mudie does not own shares in any companies mentioned in this article.
