Takeover rumours

When I first started dabbling in the stock market, like many investors I tended to concentrate on larger companies that were generally household names. However, I soon moved away from these companies towards the smaller types of organisations I invest in today. There are many reasons why I quickly moved away from investing in big caps, but the main one would be because small caps are often overlooked and under-researched whereas the larger companies are analysed to death by hundreds of professionals. It therefore seems likely that there is more chance of spotting a bargain amongst the small-caps.

However, that doesn't mean that there aren't bargains to be had even in the FTSE-100.

I am always interested when I hear takeover talk mentioned in the papers and elsewhere, and keep a watchful eye on potential targets.

Back in 2002, there was a lot of talk in the press about Safeway supermarkets being vunerable to a takeover, and having cast an eye over the fundamentals, I decided that the shares did look cheap. I waited a while for the rumours to die down before buying a small stake. The share price drifted for a few weeks/months before Morrisons eventually made their successul bid, and I was able to bag a 20% profit.

So where are the rumours that just won't go away at the moment?

Well amongst the larger caps, Man Group seems to be popular, and further interest has been aroused by Odey Asset Management recently taking a near 5% stake in the group. I've no idea whether or not a potential bidder may appear, but certainly the rumours have lingered for some time. I haven't researched the fundamentals, but I am aware that the shares have fallen considerably from their peak, that the company has been struggling to hold onto it's investors and that its AHL fund continues to underperform. On the plus side it appears to offer a double digit dividend which, if it can be held, is not to be sniffed at. Break-up value is touted to be around the 50p-75p mark.

An investment in Man Group would look very tempting if the share price were to drop to within this range.

Another large company where takeover talks have often arisen is Sainburys. In truth, this looks a safe company in which to 'park' your money, offering a very healthy dividend yield, slow but steady growth in earnings and with substantial property assets on it's balance sheet.

In 2007 the Qatari backed Delta Two fund held talks over a 600p per share offer for the group, but backed off because of the credit crunch. However, during the summer, rumours about renewed interest surfaced once again.

My instinct tells me that either one or both of these giants will eventually fall prey to a takeover bid, and although you're probably not going to achieve a multi-bagger with either one, traders with a short/medium term horizon may make a healthy profit.

I don't own shares in either company, but I will keep them on my watch list, although I do tend to stick to my small caps these days.



My recommended investment books:-

http://astore.amazon.co.uk/httpmichae1mb-21