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

Well worth a read!!

I have decided to add a link to my blog pages which list my favourite investing books. It may be of interest to some of you. Personally I have read some of the books more than once, and they have proved invaluable to me in helping form my investing strategy. The link is given below:-

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

My particular favourites are 'The Intelligent Investor' and 'Security Analysis' by Ben Graham and 'One up on Wall Street' by Peter Lynch. For the serious investor, Graham is a must read in my opinion.

Updates - Indigovision, Avesco and Interior Services Group

A quick update on three shares I hold, and have mentioned recently.

ISG kicked off the week with encouraging news about £100m worth of contract wins in the UK and overseas.

David Lawther, ISG Chief Executive, said:
"We continue to see robust demand for our services from our blue-chip customer base, both in the UK and overseas."

Clients include Heathrow airport and Marks and Spencer.

http://www.isgplc.com/home/default.asp

The shares went ex-dividend this week and have dipped a little, but with good news about economic growth in the UK also announced this week, I am optimistic about future prospects here.

River and Mercantile Asset Management picked up an additional 200,000 shares on Friday to increase their holding to above 5%.

Richard Murray, Avesco's Chairman, continued to increase his holding in the group picking up another 20,000 shares at 159p and 160p. Over the last month or so he has topped up his holding by spending around £125,000. He owns over 20% of the company.

It's worth taking a peek at Creative Technology's facebook page for a glimpse of Avesco's recent contract wins:-

http://www.facebook.com/creativetechnologygroup?sk=wall

Notably there is a Brazilian project mentioned which is important given that Brazil will be hosting the next football World Cup and Olympic games.

No news on the Disney case yet, although this is an interesting article:-

http://www.dailybusinessreview.com/PubArticleDBR.jsp?id=1350208605438&9th_Circuit_airs_arguments_over_game_show_Millionaire_profits&slreturn=20120927041916

It hints that Disney's appeal may not be successful.

However, I'm happy to hold these whatever the outcome. This is a growing company that will be throwing off cash in the future. Avesco has performed exceptionally well despite the less than conducive economic conditions.

Finally, Indigovision's former Chief Executive looks to have finally thrown in the towel and has sold his entire holding. Clearly he no longer harbours ambitions about regaining control of the company, which allows management the opportunity to concentrate on moving the business to the next stage without unwelcome distractions.