Takeover rumours have started to swirl around the City again. This time, the rumours stem from sources who have revealed that a group of banks is putting together a package of debt, worth around $60bn, to fund a takeover.
Only a few companies are worth $60bn, around £36bn, and fewer still would be able to shoulder a $60bn debt burden. So, with this in mind, the City has narrowed the possible takeover targets down to SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US) and BG Group (LSE: BG) (NASDAQOTH: BRGYY.US).
Rudderless
BG has become the perfect target for a takeover attempt. Indeed, the company appears to have lost its way recently and is currently without a CEO. Former CEO Chris Finlayson was ousted by shareholders earlier this year, after only 16 months on the job.
What’s more, some of the company’s major projects are delayed and running over budget. Then there is Egypt, where the company has issued a Force Majeure. Egypt accounts for about 18% of BG’s production and much of this gas is now being diverted away from export terminals, to the domestic market. This has hit the company’s income from the region.
Nevertheless, BG does have some attractive assets. For example, the company is still producing around 600,000 barrels of oil equivalent per day and is the world’s most active LNG trader.
And for these reasons BG could be an attractive target for a larger peer, such as ExxonMobil, or Chevron. With a market capitalization of £42bn, BG would be a drop in the ocean for Exxon or Chevron to acquire and the acquisition would add an immediate boost to production for these majors.
Tied into contracts
SAB has also been the subject of recent takeover speculation. I say recent, SAB has been the subject of takeover speculation for around a decade now and so far, these rumours have not amounted to much.
It is more than likely that these rumours will once again prove to be nothing more than hot air, as there are a number of reasons that a takeover attempt would fail.
For example, SAB’s suitor can be none other than larger peer, Anheuser-Busch InBev due to the size of the deal. City analysts reckon that AB InBev would have to offer a 40% premium for SAB’s shares, a price tag of around £80bn, or $134bn at current prices. There would be plenty of noise in the City if AB InBev was trying to raise this much cash.
What’s more, AB InvBev has a partnership with PepsiCo that has until 2017 to run, while SAB has a strong relationship with Coca-Cola. Any deal is likely to be postponed until these contracts expire.
Foolish summary
So if rumours swirling around the City prove to be true, a mega-merger could be one the cards in the near future. SAB and BG are the most likely targets, although due to existing commitments it is unlikely that SAB will be a target.
