1 potential takeover target from the FTSE 250

A large Dr. Martens shareholder has urged the FTSE 250 firm to consider a sale. Stephen Wright – a much smaller shareholder – doesn’t want this to happen.

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There’s a lot of interest in UK companies at the moment from a takeover perspective. And there’s a FTSE 250 company that I think might be a plausible acquisition target.

Shares in Dr. Martens (LSE:DOCS) have fallen 79% since it initially appeared on the stock market in 2021. And it’s reached the point the possibility of a takeover looks increasingly plausible.

Speculation?

The idea of Dr. Martens being acquired isn’t just speculation. Earlier this week, the stock jumped as one of its major shareholders pushed for a strategic review considering the possibility of a takeover.

Mario Cibelli – managing member of Marathon Partners Equity Management – said the company being public isn’t in the best interests of shareholders. Instead, management should pursue a sale.

According to Cibelli, the business could be sold for around $2bn to someone able to streamline and improve its operations. That’s 70% higher than the company’s current market value.

That’s an attractive return for investors. But while I’ve been buying Dr. Martens shares for my portfolio, it’s not because I think there’s an opportunity to sell them on to someone at a higher price.

An undervalued stock

Cibelli stated that the company’s share price doesn’t accurately reflect the intrinsic value of the underlying business. And I agree with this, but that makes me want to buy it, not sell it. 

I therefore don’t want the company taken private or sold to a larger competitor. I’d rather keep adding to my own stake in the business while I think the shares are a bargain.

It’s definitely true that Dr. Martens has been facing a difficult trading environment and has made this worse with mistakes of its own. So there’s clear risk with owning the stock going forward.

As I see it, though, there’s a chance to buy a stock that trades at a bargain price right now. So I’d rather take advantage myself than offer it out to someone else.

Who would buy it?

If management does decide to look for a buyer, I don’t think it would be short of options. One that stands out to me as a potential candidate is Deckers Outdoor (NYSE:DECK). 

Deckers owns running shoe brand Hoka and has a boot brand of its own in Ugg. I can see Dr. Martens fitting nicely alongside these as part of its lineup.

Furthermore, the company has done very well lately. At a time when rivals have been struggling with a difficult macroeconomic situation, the business has kept sales growing impressively.

I think Deckers probably has the capacity to fix what ails Dr. Martens. And with its own stock trading at a price-to-earnings (P/E) ratio of 32, the might even be an arbitrage opportunity.

A stock to consider buying

I’ve been buying shares in Dr. Martens for my portfolio and I intend to continue doing so. That’s because I think it’s good value, though, not because I think a takeover might be on the cards.

I’d rather the company didn’t get taken private – while it would likely boost the share price, finding undervalued stocks is hard enough as it is. But if it happens, there won’t be much I can do about it!

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.

Stephen Wright has positions in Dr. Martens Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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