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Merger Mania: Could These Four Companies Be Takeover Targets?

Merger mania is taking over the market. 

The total value of mergers and acquisitions around the world has hit $1.2trn year to date, up 42% from last year, a high not seen since 2007.

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However, this boom is nothing like the debt-funded leveraged buyouts which have become a symbol of the financial crisis. More than half of the M&A deals so far this year have been done in cash and with corporate cash levels sitting at an all-time high, further deals could be on the cards. 

So, with this in mind, these four companies, all of which have been the subject of previous takeover speculation, could become targets once again. 

Valuable utility

United Utilities (LSE: UU) has been subject to plenty of bid speculation ever since Borealis, the Canadian infrastructure investor, failed in its quest to buy out United’s peer, Severn Trent. It’s widely expected that Borealis will come back for round two, this time targeting United.

Further, takeover speculation has been given a boost recently after water industry regulator, Ofwat released its guidance on how much profit water companies were allowed to generate, an issue subject to much debate recently. The regulator has stated that water companies are allowed to achieved a return on capital of 3.85%, which matched City expectations.

Attractively priced

Sainsbury’s (LSE: SBRY) (NASDAQOTH: JSAIY.US) has fallen out of favour with investors recently and short bets against the company’s shares have risen to an all-time high. 

However, the Qatar investment fund still holds a 26% share of the company and after recent declines, the state sponsored fund could be tempted to make a bid. 

The fund tried to acquire Sainsbury’s during 2007, offering £10.6bn, just under 600p per share, but was forced to abort the attempt. Sainsbury’s is now a bigger and stronger company than it was during 2007, making the company an attractive prospect, especially considering the fact that the grocer’s valuation is lower than when Qatar made its first approach.

Continued speculation

Weir Group (LSE: WEIR) is no stranger to takeover speculation. The pump marker has long been considered a potential target, ever since the beginning of the shale oil boom and is considered by many analysts to be the perfect fit for US engineers looking to expand into shale oil extraction business. 

And there has been talk that some big names are looking at Weir, including General Electric and Caterpillar, both of which could easily stump up the cash to snap up Weir. 

Luckily, Weir was rebuffed earlier this year when it tried to merge with Finnish rival Metso. Weir offered £3.3bn for Metso, which would have been a big set for Weir as the company only has a market capitalization of £5.5bn and any deal would have resulted in significant dilution for Weir’s existing shareholders.

Sector consolidation

Lastly on the takeover list is old favourite, Imperial Tobacco (LSE: IMT). Imperial has previously been touted as a takeover target but until recently, much of the City believed that Imperial’s poor performance was likely to put possible suitors off. 

Indeed, the company has been suffering from the frosty economic climate within Europe, Imperial’s biggest market. Nevertheless, Imperial has started to turn things around and targeted investment within key markets such as Italy and Australia is cutting Imperial’s reliance on underperforming tail brands, allowing the company to grab market share.

With growth returning, Imperial could become the target of a larger peer, after all, the company has an attractive portfolio of tobacco assets as well as a global distribution business. 

Unlikely to make you rich 

All these companies are attractive takeover prospects but due to their size, none of them are likely to be multi-baggers.

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Rupert owns shares in Imperial Tobacco. The Motley Fool has recommended shares in Weir Group.