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Could AMP Limited be a takeover target?

The Australian Financial Review (AFR) is reporting this morning that leading insurer and financial services provider AMP Limited (ASX: AMP) could be viewed as a takeover target.

In many ways it’s not really surprising that AMP, one of Australia’s largest blue chip companies is being touted for a shake-up given its disastrous performance for shareholders. Compared with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) which has returned 40% over the past five years, AMP’s share price has gained just 7%. While over the past decade, including dividends its total shareholder return has been a meagre 5%.

When it comes to natural owners of AMP, banking and insurance firm Suncorp Group Ltd (ASX: SUN), which has a market capitalisation at around $18 billion (compared with AMP’s $16 billion) could be an acquirer, as could one of the major banks but neither option seems likely. Alternatively, private equity could make a play, however more realistic would seem to be the potential for a large multi-national looking for an immediate footprint in Australia and New Zealand to be a logical buyer.

What to do…

While some investors live by the mantra “buy the rumour, sell the fact”, an appraisal of AMP’s valuation is a more sensible approach to deciding the merits of an investment opportunity. With the stock trading on a forecast price-to-earnings ratio of 14.8, the stock is cheaper than many of its listed financial services peers, however regard needs to be given to AMP’s insurance operations.

A value price tag + growth + big dividends!

AMP would almost certainly make a good investment if it receives a takeover approach but it might not have as much upside in its own right. In comparison The Motley Fool has identified one stock that has outstanding prospects. Don't miss what could be the 'story stock' of 2014! Get The Motley Fool's #1 pick now in our newly updated investment report. It's yours FREE. Simply click here for your copy of "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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