Takeovers are becoming easier and easier for Australian companies, with record-low interest rates at a time when organic earnings growth is hard to come by.
Investors need only look at the telecommunications space where the rapid share price rise of M2 Group Ltd (ASX: MTU) allowed the company to put in a competitive, but all scrip, offer for rival iiNet Limited (ASX: IIN) that initially outbid the cash offer from TPG Telecom Ltd (ASX: TPM). TPG’s revised offer now has an all-cash option which iiNet’s board has recommended due to its improved flexibility and certainty for shareholders.
Shares vs Debt
When a company’s share price is high (either on an absolute or price-to-earning basis), companies prefer to issue shares for acquisitions, as it reduces the dilution of existing shareholders and drives earnings per share growth.
Similarly, when a company can borrow money for the purchase at a low rate, shareholders are also rewarded by earnings per share growth, however this is weighed down by interest repayments.
With share prices at record highs for many top-quality companies, and interest rates at record lows, now is the perfect time for established players to look at purchasing smaller groups.
7 Top Takeover Stocks
Some of the most attractive companies on the ASX are currently facing either debt or revenue growth headwinds that could be overcome by being taken over by a larger player. Consider these 7 stocks:
Struggling but profitable media companies STW Communications Group Ltd. (ASX: SGN) and Southern Cross Media Group Ltd (ASX: SXL), or even some of the more major oil and gas companies including Beach Energy Ltd (ASX: BPT) and Senex Energy Ltd (ASX: SXY).
No one knows! However one would imagine that the best buying will be during the next correction.