Who Is A Takeover Target In The FTSE 100 Right Now?

Anglo American plc (LON: AAL), Ashtead Group plc (LON: AHT), Rio Tinto plc (LON:RIO), Vodafone Group plc (LON:VOD) and Royal Bank Of Scotland Group plc (LON:RBS) could be FTSE 100 (INDEXFTSE:UKX) takeover candidates.

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At least five big companies in the FTSE 100 could be takeover targets in the wake of Shell‘s £47bn ($70bn) offer to acquire BG, which emerged last week. If I had to single out five names, they would be Anglo American (LSE: AAL), Ashtead (LSE: AHT), Rio Tinto (LSE: RIO), Vodafone (LSE: VOD) and — wait for it — Royal Bank Of Scotland (LSE: RBS). 

Here’s why. 

Ashtead: Why Not, GE? 

An international equipment business, Ashtead could easily attract a 30% premium to its current valuation, which yields a market cap of £7.3bn and an enterprise value of £9.3bn. The company has been subject of takeover rumours for more than a decade.

As it focuses on its core businesses, General Electric — which is rumoured to be about to sell up to $30bn in real-estate assets — could buy Ashtead and flip some assets to private equity firms. Alternatively, private equity firms could snap up Ashtead and flip some assets to GE, although GE would have to retain some of Ashtead’s debt on its books under both scenarios. 

Forecasts are bullish and, at 18x forward earnings, Ashtead doesn’t come cheap. The stock is down 3.4% so far this year, but has almost doubled in the last two years. 

Anglo American Is Ripe For A Takeover

Anglo is a target for all the major miners in the world: its valuation is incredibly appealing right now.

Its enterprise value is $34bn, which means any deal would likely range between $45bn-$60bn, including net debt. Its equity is almost as cheap as it was in February 2009, just a few weeks before the market started to rally, and isn’t far away from its all-time lows in 2000 and 2002.

Its earnings multiples for 2015 and 2016 are around 12x and 9x, which signal a stressed valuation. The stock is down 10% this year, and its performance reads -63% over the last five years. 

Rio Tinto: An Obvious Target 

It’s hard to say whether Glencore will make a comeback for Rio any time soon, but what is certain is that any offer would have to be in the region of $115bn — or $45bn more than Shell’s offer for BG!

“Rio Tinto rejected an approach this summer by Glencore that would have combined two of the world’s biggest miners,” The Wall Street Journal wrote in October. Nobody really knows why Glencore was rejected, but most investors expect Glencore to place an opportunistic bid at some point. 

Rio’s trading multiples are broadly in line with those of Anglo, and its stock has also been punished over the years — it’s down only 2% in 2015, but has lost 22% of value over the last five years. 

Vodafone: Too Big To Be Bought? 

It takes a huge leap of faith to suggest that Vodafone may be bought out in its current form. The problem is that a break-up of the group would likely expose the operational and financial weakness of the parts — and even then, the parts would likely be too big to attract bids, anyway!

Many of its would-be suitors — AT&T and SoftBank, in particular — are intent on integrating other assets, so a blown-out offer is very unlikely to be around the corner. I think it will take at least a year or two before takeover rumours swirling around Vodafone become real M&A talk.

That said, should it materialise, a takeover would value Vodafone’s enterprise in the region of £100bn, including net debt. For 40%-45% of that amount, guess who is another takeover candidate in the UK?

Decision Time At RBS? Sources Say So…

Royal Bank Of Scotland, of course!

Its equity value stands at about £40bn (about 350p a share) so, if I am right, any deal would likely involve a small premium — but then check out break-even for the government on its “investment”! 

Whatever the outcome of the elections, sources say, RBS advisors are eager to go for a quick sale of a large stake in RBS to sovereign wealth funds from the Middle East, which have shown interest in recent times. 

Negotiations could lead to a deal, I hear, but then a small premium would be the ultimate price to pay for the taxpayer — who would get their money back, however, only if a premium between 30% and 40% emerged.

That equates to a share price between 455p and 500p a share…..”there are talks, but there’s no way bidders will pay more than 380p a share for RBS in this environment,” a senior banker told me this week. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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