The surging Morrisons share price

The explosive growth started in mid-June following a takeover bid from Clayton, Dubilier & Rice (CD&R). The private equity firm tried to acquire the whole business for £5.5bn. Seeing the share price jump to match the offer is not that surprising. But after some deliberation, the management team firmly rejected the bid. They said the “Conditional Proposal significantly undervalued Morrisons and its future prospects”.

In my experience, a rejection of the first takeover bid is often followed by a higher bid by either the same or another firm. Personally, I had my doubts about another offer materialising given the size of the deal. However, it seems I was wrong on that one. Oppidum Bidco (a newly formed company indirectly owned by Fortress Investment Group) has just made a bid for £6.3bn that Morrisons has recommended.

This second bid again sent the Morrisons share price flying even higher. And it’s now trading around 265p per share. However, what’s odd is that the acquisition price (which has yet to be approved by shareholders) stands at 254p. So why is the share price higher?

What’s next, and what are the risks moving forward?

It seems that investors are convinced that yet again, another higher bid will be made for Morrisons. This has yet to be seen. But private equity firm Apollo Global Management has announced it’s in “the preliminary stages of evaluating a possible offer for Morrisons”. Meanwhile, there are rumours that Amazon may be looking to expand its existing grocery partnership with Morrisons into a full-blown acquisition.

Needless to say, if another larger offer were to be made, then the Morrisons share price could continue to climb. But to me, this is starting to look like speculation rather than investing. There’s no guarantee that another offer will be made. Not to mention that even if shareholders approve Oppidum Bidco’s offer, the deal may still not go through. 

The bottom line

Overall, my opinion on the business remains largely unchanged. The management team’s ability to adapt to rising competition and new shifts in consumer behaviour with home delivery has allowed the company to retain its market share and reward shareholders with a sizable dividend.

Therefore, if an acquisition doesn’t happen, the subsequently falling Morrisons share price could be an attractive buying opportunity for my portfolio. However, at its current price, I don’t see much upside potential left. I won’t be buying any shares today.

The post What’s going on with the Morrisons share price? appeared first on The Twelfth Magpie.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons. 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.

This sale will, of course, depend upon shareholders approval. But I think this is likely to be given. After all, shareholders have known for some time that this spin-off was in the pipeline. Weir management is keen to streamline operations and focus on its core business of supporting global mining operations.

So, with all this in mind, is now a good time to buy Weir’s stock? Well, it all depends…

Weir Group share price forecast

Historically, divestitures are generally good for investors. The share prices of parent companies often perform well and most of my own research suggests that most sell-offs increase shareholder wealth. Consequently, an immediate rise in Weir’s stock price upon the sale announcement was always likely.

However, some academic studies have also shown that’s it’s not uncommon for divesting companies to undervalue the asset up for sale. But in this case, Weir’s oil and gas division provided the firm with a £372m pre-tax loss in 2019, on top of a £546m impairment charge. And with low oil prices denting demand for pumping equipment, it’s likely that the financial profile of the division no longer complements its mining business. Moreover, this situation would likely increase costs, damaging profits further.

I’m not convinced the energy equipment maker is in a position to wait for a higher bidder. But, I’m expecting a volatile share price as investors weigh up whether £313m is a good price for the oil and gas division.        

Other factors to consider

At the current price around 1,483p, Weir Group is selling without a valid price-to-earnings ratio. This is because its 2019 earnings, and indeed its five-year average earnings figure, is negative. In other words, over the last five years, Weir Group has not made an overall profit. As an investor, this is a big red flag for me and makes its current selling price very expensive.

However, a major reason earnings per share were negative in 2019 was due to a write-down of oil and gas assets. And in the first half of this year, its oil and gas division saw a 48% drop in revenue and an operating loss of £4.4m.

From this perspective, the sale of this division is good news. Weir will use the cash to pay off debt and enable the group to move forward as a “focused, premium mining technology business“. Management is relying on growing demand in harvesting essential metals sustainably and efficiently. As its core business, this bodes well for the future and I suspect this optimism is what caused the explosion in Weir’s share price yesterday.

However, as I’m not already an investor in the firm, I think I’ve missed the short-term opportunity for any capital gains relating to the sale of its oil and gas division. Indeed, Weir’s stock is now too expensive for me.

Yet once the sale has gone through, Weir Group is well-positioned for the future and I’ll consider it again when the price settles down. But for now, I think there are other investments out there that may provide better returns.   

The post Weir Group share price explodes! Here’s what I’m doing about it appeared first on The Twelfth Magpie.

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Rachael FitzGerald-Finch has no position in any of the shares mentioned. The Motley Fool UK has recommended Weir. 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.

For Mr Murdoch, the news was mixed as the CMA ruled he would have too much control over the UK’s news industry were he to gain full control over the broadcaster. Although this isn’t the end of the world as there are ways to solve this before culture minister Matt Hancock makes the final decision by May 1^st, it does throw up some roadblocks.  

However, the group’s impressive H1 results mean that even if this deal doesn’t go through, it wouldn’t be surprising to see rumoured interest from US media giants Comcast and Viacom turn into firm offers. A big part of their interest is due to dramatic consumer consumption habits that have stung traditional TV broadcasters but have also made them tempting targets for vertically integrated media firms such as Comcast and Viacom.

To this end, the fact that Sky added 365,000 customers across Europe during the half year will be particularly pleasing as its these eyeballs media firms are targeting. And then there’s the added fact that Sky is actually performing quite well. In H1, the firm’s like-for-like revenue rose 5% year-on-year, while increased operating efficiencies boosted EBITDA by a full 10%.  

That said, Sky’s current valuation of £17.6bn, or over 25 times earnings, means the group’s takeover potential is pretty firmly baked into the share price. For would-be investors that means I see little upside in jumping in and buying its shares right now.

Is this year finally the year? 

A more undervalued takeover target is tobacco giant Imperial Brands (LSE: IMB). The group seems to be a perennial favourite for takeover rumours due to lower profitability than peers such as British American Tobacco, relative lack of scale in some markets, and lack of a compelling next generation heat-only vaping device.

But with its share price down 20% over the past year and its valuation at a steep discount to its larger UK-listed rival, Imperial may be looking more attractive to would-be suitors. At the top of the list if Japan Tobacco, who could use Imperial as a rapid way to gain exposure to markets in the Middle East and North Africa, which would lessen its own reliance on highly-regulated Japanese and European markets.

This persistent rumour was boosted in November when Japan Tobacco named a new CEO who has experience overseas, oversaw large acquisitions in his previous posts, came right out and said in an early interview with Reuters that he wanted to expand overseas through acquisition, and that the size of any such deal wasn’t a problem.

With Imperial’s valuation down to 19.8 times earnings while kicking off a 5.8% dividend yield, now is an interesting time to take a closer look at the business. But I still see plenty more to like about its much more profitable and faster-growing rival, British American.  

The post Why Sky plc and Imperial Brands plc are top FTSE 100 takeover targets for 2018 appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.

The group’s financial performance has only deteriorated since then — pre-tax profits fell by more than 40% during the firm’s first quarter after it was forced to pay out £225m to Deutsche Telekom and Orange, to avoid legal action related to its Italian accounting scandal and its purchase of EE.

Overall revenues climbed by just 1% to £5.8bn, as growth slowed on the consumer side and wholesale revenues continued to shrink.

Dividend risk?

Looking ahead, there are growing concerns about the sustainability of BT’s dividend policy as capital expenditure is being ramped up. BT has pledged to spend billions over the next few years on upgrading its Openreach and EE networks. At a time when its revenues are coming under increasing pressure from its rivals and margins are being squeezed by the spiralling cost of sports rights, this would likely crimp cash available for dividends.

Shares reached a new 52-week low yesterday and are now trading at just 9.8 times forward earnings. With such a low valuation multiple, it is apparent that investors are concerned about the additional possible downside in the months to come.

A better buy?

Meanwhile, I reckon that Sky (LSE: SKY) could be a safer buy for investors looking for a FTSE 100 pick.

Fundamentals are still going strong for the satellite broadcaster, following an upbeat trading update this morning. Like-for-like revenue increased 5% to £3.3bn in the three months to 30 September, as it delivered another strong quarter for customer growth. Some 160,000 new customers joined the company in the first quarter — a 51% increase on the same period last year, reflecting the success of its airing of Game of Thrones and original commission drama Riviera.

Fox’s offer of £10.75 per share

Shares in Sky are up 2% today, but they’re trading at a 14% discount to Rupert Murdoch’s 21st Century Fox offer price of £10.75. And that’s before we take into account the 10p per share special dividend which shareholders would get if the deal is completed after 31 December 2017.

Although the acquisition is far from a done deal as Murdoch’s £11.7bn Sky takeover bid is referred to Competition and Markets Authority, I think its shares are still an attractive arbitrage opportunity as the downside risk seems limited. Sky’s underlying financial performance is improving and valuations seem undemanding, with shares in the company trading at 14.4 times this year’s expected earnings.

What’s more, if the deal falls through because of a failure to clear regulatory hurdles by 15 August 2018, Fox would have to pay a £200m break fee to Sky. This could potentially lead to a windfall payment to Sky’s shareholders, which would reduce the downside impact of the deal falling through.

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Jack Tang has no position in any shares mentioned. 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.

Apple

The decision to put the company up for sale comes just over two months after Apple announced that it was developing its own graphics chips and would no longer use Imagination’s intellectual property in its products in around two years’ time. And as Apple accounts for nearly half of Imagination’s annual revenues, the British firm risks losing future royalty payments under the current license and royalty agreement.

However, Imagination said it believes Apple will struggle to avoid infringing its intellectual property rights, as the US giant has used its technology and intellectual property for many years and because its tech has formed the basis of the Graphics Processor Units (GPUs) in Apple’s phones, tablets, iPods, TVs and watches.

Significant premium

Any potential suitor for Imagination should be able to get the company at a favourable price, at least compared with a year ago, as its shares have lost nearly half of their value since April. This could mean that a white knight bidder may be willing to pay a significant premium to today’s share price, but that’s far from being certain in any way.

Meanwhile, Imagination has been trying to return to profitability by cutting costs and expanding its presence in the rapidly emerging automotive and augmented/virtual reality markets. These new markets could become strong potential growth areas and may, in the long term, generate enough revenues to offset the loss of its licensing deal with Apple.

As for now, some profit-taking is to be expected after today’s strong gains. With this in mind, I’d avoid buying its shares until at least after the company’s full-year earnings release on 4 July.

Billion-dollar acquisition

Elsewhere, Diageo (LSE: DGE) has agreed to pay up to $1bn to buy Casamigos, a fast-growing premium tequila brand co-founded by George Clooney and two other business partners in 2013.

The acquisition is set to help the world’s largest spirits maker expand into a fast-growing market, in which it currently only has a limited presence. Tequila has been the strongest performing category in the US in recent years, with sales up 7.4% last year, compared to just a 2.6% increase for the overall distilled spirits sector.

Casamigos has delivered impressive growth in recent years, with a compound annual growth rate of 54% in the last two years. The company shipped 120,000 cases of tequila in 2016 — and looking ahead, Diageo reckons it is on track to reach over 170,000 cases by the end of 2017. 

Bottom Line

It’s good to see Diageo step up efforts to expand into faster growing markets after years of sluggish organic volume growth. But since its shares have already gained 27% over the past 52 weeks, mostly due to sterling’s weakness, I reckon valuation look a little expensive. That’s because shares in the spirits maker trade at a forward P/E of 21.1, compared to its five-year historical average of 19.6.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of Imagination Technologies. The Motley Fool UK has recommended Diageo. 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.

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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What’s a company to do when its €788m mountain of cash on hand has grown to nearly a quarter of its total market cap? Well, the standby option is normally a big dividend or a big acquisition. Management at gambling software provider Playtech (LSE: PTEC) has broken the mould and opted for both.

Playtech has long paid out impressive dividends but in August the company surprised investors with a bumper €150m special one on top of a 15% increase to interim payouts. Analysts were already forecasting a 5.3% full year yield, so income investors should be very interested in this development.

A big chunk of Playtech’s remaining cash hoard is being spent on adding to the company’s dominant position in gambling software as well as expanding into financial trading services. The announcement today of a €110m deal for a payment processing brokerage further adds to Playtech’s position in this latter category.

This deal brings Playtech’s total M&A spend in 2016 up to a whopping €280m, which together with significant deals announced last year means the company will need to concentrate on integrating these disparate assets sooner rather than later.

The good news is that paying for this shopping spree is well within Playtech’s reach thanks to impressive cash generating capabilities. In the first six months of 2016 alone the company had €137m in EBITDA from €337m of revenue.

These high margins come from providing all major gambling sites with the software to run their online and offline gambling services. As punters increasingly shift from gambling in high street shops to gambling on their mobiles, demand for Playtech’s services should only increase. Together with a growing presence in the financial trading services segment and a stellar dividend, I believe Playtech is worth a closer look for growth investors even with shares trading at 33 times trailing earnings.

One for pet lovers

Another acquisition-heavy business is veterinary clinic chain CVS Group (LSE: CVS). It added 67 surgeries in the year ended June 30 and now has 363 across the UK. The company’s business plan is to purchase individual clinics, improve their profitability, and expand the potential market for its own insurance and pharmacy offerings.

This plan is working well so far with like-for-like sales growth of 4.8% and acquisitions leading to a full 30.4% rise in year-on-year profits in 2016. The company’s Healthy Pet Club insurance offerings are one of the fastest growing segments. Membership rose 18.8% year-on-year and customers’ recurring payments now account for 12.3% of total revenue.

Unfortunately providing animal health care isn’t as high margin a business as Playtech’s. Operating margins over the past year were only 5.4% and the company had to turn to leverage to fund new acquisitions. Due to £61.3m in acquisition costs net debt increased to £93.1m at year end. This was 2.54 times EBITDA, which is well within debt covenant limits, but could become a worry should acquisition turnarounds not perform as well as in the past or if customers cut back on pet healthcare in an economic downturn.

CVS Group is an interesting and fast-growing business, but debt-fuelled acquisitions make me leery when a company’s operations aren’t throwing off significant amounts of cash.

The post Another wise acquisition cements this growth and income stock as a buy in my book appeared first on The Twelfth Magpie.

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Any investor with young children is likely to be all too familiar with the marketing juggernaut that is children’s cartoon Peppa Pig. Although she began life as an animated cartoon, kids today can cajole their parents to buy Peppa-branded video games, toys, bed sheets and nearly anything else marketers can slap a logo on. That’s why ITV (LSE: ITV) made headlines today with a £1bn bid for Peppa’s owner, Entertainment One.

Peppa Pig and her anthropomorphic friends may be a major cash spinner for Entertainment One, but ITV’s interest stretches beyond adding to its bottom line in the short term. Rather, the broadcaster is seeking to lessen its reliance on advertising as a portion of overall revenue by owning high-quality content it can distribute internationally.

This is a wise move considering the cyclical nature of ad revenue, dependent as it is on the general health of the economy. So far, ITV’s acquisitions and in-house investments have paid off, developing mega hits such as Britain’s Got Talent that now bring in 38% of overall group revenue, up from just 15% five years ago.

With all major media companies seeing their future as content distributors first and foremost, ITV is right to move ahead quickly with buying quality programming such as Peppa Pig. And, with net debt at just 0.9 times adjusted EBITDA at the end of June, well within the company’s 1.5 times target, it has the necessary financial firepower to continue making large acquisitions.

After taking a battering post-Brexit vote, the shares are looking like a relative bargain as well at 12 times forward earnings while offering a healthy 3.26% yield. Still, investors should remember that the majority of revenue still comes from advertising, so any economic slowdown will hit the company’s bottom line hard.

Taking a gamble

Consolidation among pharmaceutical giants may have been the biggest M&A news of the past year, but the UK gambling sector has been giving that industry a run for its money. The latest attempted tie up was Tuesday’s £3.6bn bid by 888 and Rank Group for their larger rival, William Hill (LSE: WMH).

William Hill’s board promptly dismissed the bid but it’s unlikely that this is the last we’ll hear from the company on that front. The frantic pace of mergers over the past year has been driven by rising taxes on gambling as well as the shift towards online betting that has left many high street giants struggling to adapt.

William Hill certainly falls into this category and last year attempted to buy 888 to improve its online offerings. With operating profits falling 16% year-on-year in the latest six-month period and management warning that “there is still a way to go” with regards to improving online offerings, the company is wise to look online and overseas for growth.

The board was right then to nix the mooted tie up with Rank and 888 as these companies’ core markets offer little to William Hill’s growth targets. But with revenue relatively stagnant, debt rising and smaller competitors racing ahead in online growth markets, I’d expect William Hill’s board to explore its options sooner rather than later on the major acquisition front.

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Shareholder value

Research shows that in the the first two years or so, value more often accrues to the shareholders of the selling company than those of the purchaser. The longer-term picture is trickier, but it’s reckoned that in up to two-thirds of cases directors fail to achieve the benefits originally targeted from the acquisition.

Big deals, especially, can be spectacularly value-destructive. Vodafone‘s £112bn takeover of Mannesmann, Royal Bank of Scotland’s €71bn acquisition of ABN Amro and Rio Tinto’s $38bn purchase of Alcan are three mega-fails that spring to mind.

Director over-confidence, the wrong deal at the wrong time, the right deal at the wrong price, due diligence failures, insufficient planning or poor execution. So many things can leave shareholders regretting they were persuaded by their board that the acquisition was a good idea.

So  what are the prospects for deal-doers du jour Royal Dutch Shell (LSE: RDSB), BT Group (LSE: BT-A) and J Sainsbury (LSE: SBRY)?

Right deal, right time

Shell’s BG buy has a clear and understandable rationale. The company becomes the world’s top liquefied natural gas trader, and a major deepwater oil producer (replenishing its reserves). This takeover has been touted as a good idea for years, and I like that Shell chose to strike during the oil slump. Some of the most value-destructive acquisitions are made when an industry is at the peak of a boom.

Shell’s dividend (current yield 7.2%) could be at risk if oil’s recent recovery goes into reverse for a prolonged period, but I think the company has tried to do the right deal at the right time. And the early signs are promising, with management already having upped its guidance on some of the benefits it expects the acquisition to deliver.

Decisive move

BT has seen that the future is quad-play packages of broadband, TV, phone and mobile, and has been decisive and aggressive to position itself as a major player here. As with Shell, the strategic rationale for BT’s acquisition of EE is clear. 

As to the nuts and bolts of valuation and benefits, master investor BT shareholder Neil Woodford said he and his team spent some time examining the acquisition, before concluding that the deal could indeed deliver long-term shareholder value. If so, a current forward P/E of 14 and a 3.7% dividend yield would appear to be attractive.

Inspired or misguided?

Sainsbury’s seems to have won over most City analysts with its shareholder-value claims for its surprise acquisition of Argos-owner Home Retail (awaiting competition authority approval), but it still strikes me as an unnatural fit. The rationale is many-faceted and appears convoluted and complex to execute in my eyes. It could prove to be a stroke of genius in a sector undergoing major structural change, or a misguided folly.

A big disconnect between Sainsbury’s next-year forecast P/E of 11.2 and Tesco‘s 17.6 and Morrisons‘ 16.8 may indicate the market also has concerns about the wisdom of the deal.

Statistically at least one of the three companies here will end destroy rather than enhance shareholder value. But how many of us sell our shares when a company makes a big acquisition, and how many of us simply cross our fingers and hope that ‘our board’ has pulled off a masterstroke?

The post Will mega-acquisitions pay off for Royal Dutch Shell plc, BT Group plc and J Sainsbury plc? appeared first on The Twelfth Magpie.

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The bundling of pay-TV, broadband, fixed-line, and mobile services in one package has seen great success across Europe, and the trend in growing quad-play offerings should drive further M&A activity. John Malone’s Liberty Global and Vodafone could be a ‘great fit’ given their highly complementary assets in the UK and Germany. So far, they have only agreed to pool their businesses in the Netherlands, but a full-blown merger remains an option.

So, while a takeover of the company doesn’t seem imminent, bid speculation should continue to keep valuations aloft. Shares in Vodafone are valued at 36.4 times expected 2016 earnings and currently yield 4.9%.

Rejected bid

In April, Premier Foods (LSE: PFD) rejected a 65p per share takeover offer from US foods group McCormick & Company. Shares in the maker of Loyd Grossman sauces and Mr Kipling cakes have since fallen by 30%, but it could be only a matter of time before another bid comes along.

The company owns some famous household brands, but because of its high debt load, many lack investment and now seem outdated. Its collection of brands could do so much better as part of a larger foods group. A merger could bring in more experienced marketing skills and additional financial fire-power, which could allow the new owners to unlock more brand value.

Valuations are supportive of another takeover offer too. Shares in Premier Foods trade at just 4.9 times its expected 2016/17 earnings, with analysts forecasting a 41% rise in adjusted earnings per share (EPS) this year.

Industry consolidating

The semiconductor industry is consolidating, as larger rivals seek to strengthen their technical capabilities and streamline supply chains. Apple supplier Imagination Technologies (LSE: IMG) could be a takeover target, following the acquisition of a 3% stake in the London-listed chip designer by Chinese state-backed conglomerate Tsinghua Unigroup.

Tsinghua Unigroup has prompted speculation around Imagination because the Chinese group has historically been very active in the M&A space. In less than three years, it has bought Spreadtrum, RDA and HP’s server business – and attempted many more takeovers.

Apple, with a near-10% stake in Imagination, could put in a bid too. The US company held takeover talks in March, but decided not to make an offer. However, if Imagination risked losing its independence, Apple could come back, especially given the importance of Imagination’s graphics IP in its iPhone and iPad devices.

Imagination is no stranger to takeover speculation and I wouldn’t be surprised if this was just another rumour.

Discount to its peers

Beverages company Britvic (LSE: BVIC) is another attractive takeover target for its larger rivals.

The company has a strong portfolio of non-alcoholic brands, and has potential to increase market share. But the soft drinks industry is dominated by giants, and smaller players could benefit from the extensive distribution networks and economies of scale of larger rivals.

Nevertheless, Britvic remains an attractive prospect as a standalone. There are significant longer-term growth drivers – improving operating performance, product innovation and international expansion. The company also trades at a discount to its peers – its forward P/E is 14.6, and shares trade at a prospective 2016 dividend yield of 3.4%.

The post 4 takeover targets? Vodafone Group plc, Premier Foods plc, Imagination Technologies Group plc and Britvic plc appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of Imagination Technologies. The Motley Fool UK has recommended Britvic. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.