South32 Ltd (ASX: S32) was spun-off from parent entity BHP Billiton Limited (ASX: BHP) just over two months ago and already it could be firming as a takeover target.
The diversified miner made its ASX debut on 18 May with a market capitalisation of $11.3 billion, immediately making it Australia's third largest miner ahead of Fortescue Metals Group Limited (ASX: FMG). Unfortunately, its first two months on the boards haven't gone exactly as the market had hoped with the stock shedding 16%, or $1.8 billion of its market value in that time.
Like other miners, South32 has been the victim of tumbling commodity prices as a result of a slowdown in China. Just last week, it even announced a US$1.9 billion write-down on the book value of its assets, with more to potentially come in the future if commodity markets don't begin to improve.
With South32's shares currently hovering below the $1.80 mark however, Business Spectator is reporting that it could be in the sights of larger rivals with South32 even going so far as to hire advisers Macquarie Capital and Morgan Stanley. In saying that however, those rivals may also have become wary of jumping too quickly at acquisitions given the headwinds tipped to drag the industry lower in the coming months and years.
While I don't believe South32 is in the sights of competitors or suitors just yet, it certainly seems like a logical possibility should the shares fall much further than their current level.
I also believe that South32 could be a reasonable long-term buy-to-hold company given its potential to reduce costs and improve productivity considerably. However, with commodity prices set to fall even further, it may be best to leave South32 on your watchlist for now and wait for an even greater opportunity to buy.
