If your favourite share isn't being touted as a predator then it could be prey.
Kraft's £10 billion bid for UK chocolate maker Cadbury (LSE: CBRY) has highlighted a renewed appetite for mergers and acquisitions (M&A).
Even as I write, Xerox has kicked-started the US trading day with a bang by revealing a $6.4bn deal for data management firm Affiliated Computer Services, while on both sides of the Atlantic speculation swirls around a dozen other companies.
It's rarely a good idea to buy shares purely hoping for a takeover -- but if you can get a decent company at a fair price, then its attractions to a potential rival is a cherry on top.
Here then are five leading UK companies that should prove be a decent investment, whether you're a stockpicker or the chairman of a rival!
1) Lonmin (LSE: LMI) -- Price: 1,693p
Xstrata (LSE: XTA) sparked renewed interest in mining consolidation back in June, when it made an unsolicited overture for Anglo American (LSE: AAL), another diversified mining giant. With Anglo's board rejecting the bid, some feel Xstrata is now itself vulnerable, perhaps to BHP Billiton (LSE: BLT).
These mining companies are all massive businesses, however, consisting of a broad mix of operations and assets. I'm not convinced the market is yet ready for such mega-deals.
Another perennial bid target, platinum specialist Lonmin, looks a more digestible morsel for either BHP or Xstrata (the latter already owns 25% of the company after a previous aborted move).
Platinum prices have plunged with the global downturn, forcing LonMin to cut 7,000 jobs and moot a rights issue, but profits could come back strongly as the global economy turns around.
2) Legal & General (LSE: LGEN) -- Price: 78.5p
Life insurer Legal & General has gained on speculation that it's the next target for entrepreneur Clive Cowdery's Resolution Group (LSE: RSL). Resolution was set up specifically to acquire and consolidate insurers, and it has already secured L&G's rival Friends Provident (LSE: FP) for £1.9bn.
It's thought that Friends Provident's institutional shareholders who also own Legal & General would support a merger, given the City's lust for economies of scale.
Legal & General is a much bigger company though, at £4.6 billion. Its shares were badly hit in the downturn, with the company reporting a £1 billion pre-tax loss in March and halving its dividend, but fears about its balance sheet are abating thanks to the equity and bond rally.
3) AstraZeneca (LSE: AZN) -- Price: 2,839.5p
Another rumour doing the rounds is that AstraZeneca could face a bid from Swiss giant Novartis.
While it isn't the first time this tie-up has been suggested, fending off a takeover would be a novel situation for the £41bn AstraZeneca. As one of the largest FTSE-listed companies, it's more accustomed to swallowing up smaller outfits to keep its growth on track than it is to seeing off its few larger rivals.
Despite being one of the best performers throughout the bear market, AstraZeneca shares are on a forward P/E of 8 and offer a 5% dividend yield, due to fears over earnings falling away as patents expire.
If UK investors can't the its value, perhaps Novartis will get its bride, especially if it strikes while the Euro is strong.
4) Man Group (LSE: EMG) -- Price: 300p
I've written about the hedge fund behemoth Man Group before, and apparently I'm not the only one to see a bargain. The £5bn FTSE 100 stalwart has risen strongly in recent months on persistent talk that it could be a takeover target for even larger financial rivals. The word is its excellent sales network in Asia is as much an attraction as its long-established institutional fund management business.
Personally, as a holder, I hope predators stay away from Man, which offers a double-digit (though clearly vulnerable) dividend yield, a solid balance sheet and the potential to return to growth as the markets continue to rally.
5) Autonomy (LSE: AU) -- Price: 1,599p
On a current year P/E of 23 and with an eye-watering growth record, it's hard to see why Autonomy's iconic founder Mike Lynch would want to sell the company he's grown into that rarest of things -- a multi-billion pound UK tech success.
Traders have been speculating however that Microsoft might consider a bid, and that it could potentially pay up to £28 a share.
Autonomy could be attractive to Microsoft or other US software firms because it's strong in exactly the Internet and search space that is now driving the computer market.
Like many US tech bellwethers, Microsoft has vast cash reserves, and again, with the pound relatively weak against the dollar, perhaps even a fast-growing giant like Autonomy -- currently valued at £3.8bn -- could yet prove vulnerable.
More from Owain Bennallack:
Owain owns shares in BHP Billiton, Anglo American and Man Group.
