As markets grow, buying opportunities open for companies as well as investors. Companies are always sizing up competitors for acquisition even if the target isn't on the market. A strategic share purchase is also possible if the price is right and value can be seen.
Stockland Corporation Ltd (ASX: SGP), the diversified residential and commercial property developer, made a move on Australand Property Group (ASX: ALZ) last week, purchasing stock to raise its interest to 19.9% in its property development competitor.
Back in October it sold its 11.6% stake in FKP Property Group, a property development company, for $103.5 million to concentrate on core businesses. In FY2013, retail and office properties made up the largest proportion of underlying profit.
Residential communities slipped in earnings substantially during that 12-month period due to difficult trading conditions. However, in H1 FY2014 there was an 8% increase in lot settlements.
Australand gets about 60%-70% of its EBIT from recurrent income through its property investments. In FY2013, that came to about $193.6 million. The next largest business segment would be residential property and finally commercial property.
Market reaction and takeover speculation
The market is expecting a takeover offer now that Stockland has reached the 19.9% ownership threshold. Some analysts have valued Australand at about $4.10 a share. It closed at $4.13 on Friday. Possibly other companies like Mirvac Group (ASX: MGR) and GPT Group (ASX: GPT) may be interested in some of the assets if they don't make takeover offers.
AMP Limited (ASX: AMP) is a shareholder in Australand and following Stockland's share purchase, raised its own stake from 8.26% to 14.13%. AMP provides financial and wealth management services, so its move may be strategic rather than for takeover purposes.
Foolish takeaway
When investors follow a stock, they should also learn about its competitors to get a sense of relative value. It can also help you find a better stock in the group sometimes.
Stockland has seen strategic value in boosting its ownership interest in Australand. Long-term investors can think like business owners and consider the long range advantages.
