Why these 2 FTSE 100 stocks should be acquired in 2017

Despite continuing to post very solid results, shares of ITV (LSE: ITV) are down more than 16% over the past year and its market cap has shrunk to £8bn. I reckon this makes the broadcaster a prime takeover target as the media industry undergoes a bout of consolidation with 21st Century Fox seeking to buy Sky and the likes of Time Warner and AT&T merging Stateside.

The theses behind these deals vary but a major reason is distributors seeking access to content. And ITV has a very large library of in-house productions as it has shifted in recent years away from being just a broadcaster to producing and selling its own content at home and internationally.

This content now includes major hits such as The Voice and Poldark, which it broadcasts at home and sells to media companies abroad. This division has been growing quickly; revenue jumped 18% year-on-year in Q3, and now accounts for roughly 37% of overall group revenue.

This means the rest of the company’s revenue is dependent on advertising sales. And herein lies the problem for ITV as this is a highly cyclical business and one that is inarguably in the midst of a secular decline as broadcast TV viewership steadily dwindles, particularly the younger demographics coveted by advertisers.

This makes me believe that shares of ITV will continue to struggle over the long term, making the company increasingly attractive for bargain-hunting bidders. This is particularly true for overseas media conglomerates due to the weak pound. With shares of ITV already trading at a relatively cheap 12 times forward earnings, I wouldn’t be surprised to see an overseas bidder making a move for the company when the company’s valuation is low, the pound is weak and debt is cheap.

The sharks are already nibbling 

Luxury brand Burberry (LSE: BRBY) may also be on the auction block in 2017 as the company has already attracted a handful of bids from American brand Coach last summer. While Burberry rebuffed these overtures the last time they came around I reckon this year may be different for the British brand as a new management team comes into power and the weak pound acts as an incentive for foreign buyers.

That said, current shareholders will almost certainly prefer Burberry to remain independent. The group recently returned to positive like-for-like sales growth in the key Asia Pacific region in Q3 and a series of forward-thinking actions such as a direct catwalk-to-store sales model appears pioneering and exactly what consumers want.

But for any bidder looking to continue the trend of industry consolidation, Burberry would make a fine addition. The brand’s goods are still largely produced in Britain, which lends them a certain status, and the fact that Christopher Bailey is relinquishing his CEO role to focus on his creative duties suggests the brand is determined to continue to resonating with customers in the future.

Burberry’s market cap currently stands at £7bn which, although higher than when Coach approached it last summer, remains a palatable sum for large luxury conglomerates. And with higher operating costs than competitors, bigger brands may view Burberry as an acquisition for which they could quickly improve profitability by cutting fat. If Burberry shares were to once again decline on further troubles in China or developed markets, I’d expect repeated interest from larger rivals.

Is Burberry your best investment today?

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