As embattled miner Anglo American (LSE: AAL) sheds assets at a torrid pace, a handful of analysts have suggested that the company’s management is setting itself up for sale. A buyout may not be likely, but it’s looking more feasible as Anglo moves to slim itself down from a sprawling diversified miner to holding just 16 core assets in diamonds, platinum and copper.
While many of these sales have been necessary to cut sky-high net debt of $12.8bn, the company has also sold off profitable mines at the bottom, or close to the bottom, of the commodity cycle. But, if the planned $3bn to $4bn in disposals this year goes ahead, net debt should fall under management’s target of $10bn.
Alongside the remaining low-cost-of-production assets, which should be free cash flow positive in 2016, this level of debt is manageable. After shares slid 44% over the past year Anglo’s market cap is now under £10bn, well within the range larger rivals could pay. Although bids may not be about to come anytime soon, Anglo could be a tempting target for cash-rich miners looking to snag assets at low prices.
Try, try again?
Pharmaceutical giant AstraZeneca (LSE: AZN) is no stranger to takeover talk, having fended off a £69bn offer from American rival Pfizer in 2014. Now that Pfizer’s merger with Allergan has been called off due to American regulatory disapproval, speculation has begun that AstraZeneca could be targeted again.
Shareholders turned down the £55 per share offer from Pfizer last time at the urging of CEO Pascal Soriot, who promised to more than double Astra’s annual revenues to $45bn by 2023. This target remains a possibility, but with shares trading at £38, well below the 2014 offer price, investors may not be so trusting this time around. However, any acquisition by Pfizer remains a long shot as it would certainly face regulatory disapproval of any takeover that would see its tax base leave the US, one of the key reasons for its earlier failed bids for Astra and Allergan.
Wait and see
Recent consolidation in the hotel industry, led by Marriott’s $12.4bn purchase of Starwood, has raised the possibility of a bidder making a move for Intercontinental Hotels Group (LSE: IHG). IHG, the owner of Holiday Inn and other mid-market brands, last surfaced in merger rumours at the end of 2015 before Marriott made its move for Starwood.
With these two giants out of the picture, any bid for IHG would certainly be a surprise. Yet, IHG brings a lot to the table for potential bidders. It appears to be trading strongly at present. Q1 results released today showed solid 1.5% growth in revenue per available room, a key industry metric, while also growing net rooms by 2.7% year-on-year. Importantly for potential bidders, it has an asset-light 84% franchisee business model with operating margins near 45%, a well-respected customer loyalty programme, and a strong presence in China, particularly in the relatively high-growth second and third tier cities.
Unfortunately, IHG’s mid-market brands mean its fortunes are closely tied to those of the global economy. The Q1 figures might be good but can they be relied on to continue? The company seems to think so based on today’s update. But with signs rapidly multiplying that growth in the developed and developing world alike is stagnating, bidders and investors alike may benefit from waiting for a possible downturn before thinking about buying IHG.
