The unexpected departure of Rolls-Royce’s (LSE: RR) chief executive, John Rishton, last week has sparked speculation that the company could soon be a takeover target. And after receiving its largest order to date, worth £6.1bn, to supply engines for 50 Emirates A380 planes, Rolls-Royce has become the best company in the engineering space.
With its rich heritage and an order book that currently stands at around £80bn following the Emirates order, Rolls-Royce is an attractive target for many potential suitors.
The company’s valuation is not overly demanding either. Rolls-Royce currently trades at a forward P/E of 16.3 and a 2016 P/E of 14.8.
Rolls-Royce isn’t the only company attracting attention from overseas.
Offers to buy
As Rolls-Royce’s engineering experience attracts customers from around the world, buyers are trying to get their hands on one of BAE Systems’ (LSE: BA) businesses.
Indeed, the company announced today that its US Intelligence and Security sector divisions have attracted external interest and a number of enquiries. As a result, has engaged external advisors to support a strategic assessment of these businesses.
However, as usual there is no certainty that any transaction will occur but any deal would be a welcome cash infusion for the company. The additional cash could fund an additional share buyback or special dividend.
BAE is currently trading at a forward P/E of 13 and offers a dividend yield of 4.1%.
Depressed valuation
Weir Group (LSE: WEIR) is no stranger to takeover speculation. With the company’s shares trading near a two-year low, it has never been a better time for a suitor to make an offer for the company.
Reports have suggested that a bid in the region of 2,500p per share has been considered by a US-based private equity consortium. General Electric has also been named as a potential bidder for the company.
Unfortunately, Weir’s earnings are set to take a hit this year following a slump in the price of oil.
Analysts expect Weir’s earnings per share to fall by around 23% this year, before rebounding by 8% during 2016. Based on these figures, the company is currently trading at a forward P/E of 17.2, falling to 16.3 during 2016. Weir currently offers a dividend yield of 2.6%.
Bright outlook
Amec Foster Wheeler (LSE: AMFW) hasn’t received any takeover interest as of yet, but this could be about to change.
Just like Weir, Amec expects weaker trading margins during 2015, as customers press for lower prices amid volatility in the oil market. Falling earnings and a falling share price could entice a bidder.
Amec is one of the engineering sector’s best run companies, and the group is slashing costs to remain competitive. The deal to buy Foster Wheeler last year will also boost earnings, and these two factors could make the company an attractive target for potential buyers.
City analysts predict that Amec’s bottom line will remain flat this year, with growth of 6% expected next year. Amec currently trades at a forward P/E of 11.5 and offers a dividend yield of 4.7%.
