MENU

Take a punt on these hot takeover targets

2014 has been a pretty good year for mergers and acquisitions. There has been in excess of $5 billion in takeover offers proposed in the last month as Australand Property Group (ASX: ALZ), David Jones Limited (ASX: DJS) and Goodman Fielder Ltd (ASX: GFF) have all been courted by rivals.

The share price of these three target companies have all bounced on acquisition news, but it’s also the case that the shareholders of the acquiring company can benefit too. An example of this is the positive response by investors to Amcor Limited’s (ASX: AMC) acquisition of an Indonesian packaging firm, and the positive response immediately after Insurance Australia Group Limited (ASX: IAG) announced the purchase of Wesfarmers Ltd’s (ASX: WES) insurance underwriting arm.

As such, here are a few companies that could be considered takeover targets, or have cash on hand to start shopping:

Takeover Targets

Two of Australia’s biggest beverage companies have had a tough time of late and could be viewed as good value at the start of a recovery for an opportunistic suitor. Treasury Wine Estates Ltd (ASX: TWE) and Coca-Cola Amatil Ltd (ASX: CCL) have fallen between 30% and 40% over the past 12 months as increased competition and poor overseas conditions have resulted in massive profit drops. They’re both the cheapest that they’ve been in a number of years and could see interest from larger international companies looking for a foothold in the lucrative Australian market.

Similarly, Echo Entertainment Group Ltd (ASX: EGP) has been a pretty terrible investment since its split from Tabcorp Holdings Limited (ASX: TAH) in 2011. It’s share price is now 32% lower than when it listed and could be an interesting target for an Asian Casino operator searching for exposure to Australia’s mature gaming market. Echo’s attractiveness could be significantly boosted if it wins the tender for a new Brisbane casino too, keep an eye of this one.

Buyers

On the other side of the coin are companies with excess cash and looking for acquisitions. One of the bigger names mentioned recently is Wesfarmers, which is believed to have up to $5 billion to spend in the near future having exited the insurance business. Names such as Incitec Pivot Limited (ASX:IPL) and Orica Ltd (ASX:ORI) have been raised as potential targets.

Amcor is also expected to continue searching for bolt-on additions in emerging markets to grow its packaging reach, while Ramsay Health Care Limited (ASX: RHC) has recently shown its intent by looking into an acquisition in France.

Taking Action

Investors looking to take advantage of takeover targets should only do so if the underlying business is of high quality or has some strong competitive advantages over peers. If its not, then its doubtful that international companies will be willing to pay a high price for it.

Another top quality stock is the Motley Fool #1 ASX pick for 2014, a small-cap stock that could be poised for big gains (and offers a fat, fully franked dividend!). Discover all the details now, including the name and code, in this FREE investment report, "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.