The Motley Fool

UK plc is on sale. I think these 2 FTSE 100 stocks could be next to receive bids

If recent weeks are anything to go by, we could be seeing even more merger and acquisition activity in the months ahead.

Last Friday, FTSE 250 member and Peppa Pig owner Entertainment One announced it had agreed to a £3.3bn takeover from US toymaker Hasbro. The former’s investors will receive 560p per share, representing a 26% premium on Entertainment One’s closing price of 443.4p on Thursday afternoon. 

Earlier in the week, pub-operator Greene King also revealed that it had struck a £4.4bn deal with Hong Kong-based real-estate conglomerate CK Asset Holdings, valuing each of its shares at 820p a pop — 51% higher than where they previously trading at.   

Considering the lack of any real progress with regard to Brexit and the corresponding fall in the value of sterling, it’s likely that more UK stocks could be subject to bids from opportunistic overseas suitors before long. Here are what I believe to be two prime candidates. 

Gearing up to be sold?

Considering its battered valuation, broadcaster ITV (LSE: ITV) must surely be in the frame. The Love Island producer’s stock has recently retreated to prices not seen since 2013 as a result of concerns over dwindling advertising revenue and competition for viewer’s eyeballs from the likes of Netflix.

Although online advertising revenue is improving, the £4.6bn-cap is hoping its soon-to-be-launched streaming service Britbox — a joint venture with the BBC — will be the thing to turn its fortunes around. 

But will it succeed? Despite being a holder of the stock, I’m sitting on the fence for now. While both ITV and the BBC both have a great back catalogue and continue to produce quality content, streaming is becoming an increasingly crowded market with both Disney and Apple due to launch their own services in the near future.

If Britbox flops, or at least doesn’t do as well as expected, I’m not sure quite what CEO Carolyn McCall has up her sleeve to prevent likely bidders from making a move. A likely suitor would be US-based Liberty Global (owner of Virgin Media). It already has a near 10% stake in the FTSE 100 company. 

As difficult as ITV’s position might be, I still believe a lot of this is already priced in. The shares trade on less than 9 times forecast FY2019 earnings and come with a fairly-secure-looking 6.9% dividend yield. 

Prime target?

Another potential FTSE 100 takeover target is supermarket Morrisons (LSE: MRW). The most logical buyer would seem to be Amazon, since it already has an agreement with Morrisons to provide food deliveries to the online giant’s UK customers as part of its Prime and Pantry services. This would, after all, give Amazon a route into the UK grocery market that it’s apparently been looking for ever since it acquired Whole Foods back in 2017. 

With Morrison’s share price now down to levels not seen since 2016 and with the company valued at just 13 times forecast FY20 earnings, you begin to wonder whether the time might now be right for a low-ball bid. Should one be made, the implications for the remaining ‘Big 3’ (Tesco, Sainsbury and Asda) would be significant. 

In the meantime, Morrison’s stock yields 5.3% which may interest contrarian investors with a focus on generating income from their portfolios. Half-year numbers from the £4.4bn-cap are due on September 12.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.

Paul Summers owns shares in ITV. The Motley Fool UK has recommended ITV. 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.