Comment: Predators stalking big game

11th Sep 2009 13:37

Merger mania has been sparked this week by the Kraft bid for Cadbury and the proposed joint-venture between the UK operations of mobile phone operators Orange and T-Mobile, with pundits posing the question: who’s next?Stockbroker Killik has identified five big names that might be on the takeover menu: BG Group, Lonmin, Man Group, Sainsbury and Smith & Nephew.Two of those, platinum group metals (PGM) miner Lonmin and supermarket chain Sainsbury, both have big shareholders on their registers who have previously made attempted takeovers.On 2 October Switzerland-based mining giant Xstrata will be legally allowed to revive its bid for Lonmin, using its 25% stake as a springboard. Last year the company proposed a cash offer of 3300p per Lonmin share but thought better of it when the financial markets went into meltdown and loading up on debt became as fashionable as mutton-chop sideburns.The 3300p offer price represented a 42% premium to Lonmin’s share price at the time of the bid. A similar premium on a new bid would suggest an offer price in the region of 2450p, based on Lonmin’s current share price of 1724p. The Swiss firm is already attempting to woo diversified mining giant Anglo American into a £42bn ‘merger of equals’, but if it fails in its courtship, Lonmin could prove a strong consolation prize.Credit concerns were behind the decision back in November 2007 by Delta Two, the investment vehicle backed by the Qatar Investment Authority, not to commit to a £10.6bn bid for Sainsbury, the number three player in the competitive UK supermarket arena. Since then the Qatar Investment Authority has been sitting on a 25% stake in Sainsbury which has declined in value by 40% since Delta Two abandoned the bid.Oil and gas giant BG Group has long been talked of a potential candidate for a takeover by any number of parties, with Killik suggesting that Anglo-Dutch outfit Royal Dutch Shell and US titan Exxon Mobile would be the near the front of the queue, though the broker does not rule out interest from China.BG has ‘attractive assets in deepwater Brazil and Liquefied Natural Gas,’ Killik notes. BG recently unveiled preliminary results from its 30% owned Guara discovery in the Santos Basin off the coast of Brazil, a find which may yet prove even better than the ‘giant’ oil discovery BP made at the Tiber Prospect in the deepwater Gulf of Mexico, which could hold more than 3bn barrels.Hedge fund manager Man Group carries a price tag of £5bn and so would be a sizeable mouthful for any would be predator but Jonathan Jackson, head of equities at Killik, said that ‘over the summer, there was press speculation surrounding the potential interest for the group from Goldman Sachs and BlueCrest.’Medical devices maker Smith & Nephew also has a market value of £5bn. It has toyed in the past with a hook-up with US competitor Biomet but talks were terminated in December 2006.Killik notes that sterling’s weakness makes UK companies relatively cheap for foreign predators.Seymour Pierce, meanwhile, has been looking at UK retailers and deciding which ones could be on the menu for bigger rivals. It has identified Kingfisher, Game Group and DSG International as possible candidates.DIY retailer Kingfisher could be targeted by US operators Lowe’s or Home Depot, while US consumer electronics retailer Best Buy, already contemplating a UK invasion in partnership with Carphone Warehouse, could go the whole hog and snap up Curry’s and PC World owner DSG, Seymour Pierce speculates.The broker says video games retailer Game Group would make a good fit with US group Gamestop.Japanese broker Nomura focuses on possible consolidation in the drinks industry where the likes of Guinness owner Diageo and South African brewer SABMiller have previous form when it comes to growth through acquisition.‘For Diageo with its relative low leverage, there are still buying opportunities in spirits, such as Moet-Hennessy, possibly the Jim Beam brand out of Fortune Brands or the Jose Cuervo tequila brand, but only if the seller's idea of valuation comes down,’ Nomura speculates.SABMiller could be smarting from losing its title as world’s biggest brewing company to Anheuser-Busch InBev and might be looking to bulk up, perhaps with the purchase of an operator in emerging markets, Nomura suggests, though it pours cold water on speculation that Australian brewer Fosters or US-Canadian brewer Molson-Coors could be in SABMiller’s sights.