THE INVESTMENT COLUMN: Lean pickings for investors looking for bid targets

Yesterday's sharp correction in the stock market notwithstanding, takeover fever continues to be a main factor underpinning share prices just now. The pounds 40bn mega-merger between Ciba-Geigy and Sandoz unveiled this week has directed investors' gazes towards pharmaceuticals, which is currently consolidating apace.

Conditions remain fertile for further moves in this area. The industry remains highly fragmented. Market shares of the leading groups are bunched between 2 and 5 per cent. The firepower is there too. Not all balance sheets are stretched: Novartis, the company to be formed from the merger of Ciba and Sandoz, will kick off life with a dowry of SFr15.4bn (pounds 8.4bn) net cash and securities. Its Swiss rival, Roche, has a strong balance sheet. Both are potential predators, but, despite the excitement, UK investors looking to spot their targets may find the pickings are lean.

For a start, the numbers of British prey have diminished after last year's takeover of Wellcome by Glaxo and Fisons by Rhone-Poulenc Rorer. Shares in Zeneca, the last middle-sized British group, have rocketed to an all- time peak on the speculation. But it now looks expensive. Cost savings might be dwarfed by goodwill write-offs. If Roche wanted to do a deal, it is likely it would have to be done as a friendly merger and Zeneca made clear on Thursday that it would be reluctant to come to the altar voluntarily.

That is not a reason to sell the shares, however. Given its strong portfolio of growth products, Zeneca remains attractive. An agreed marriage with SmithKline Beecham or Glaxo Wellcome, still heavily indebted as a result of previous corporate moves, could give an inexpensive yet substantial kicker to earnings in the future.

The other sector which has been exciting interest from speculators is media. Big deals on Wall Street, such as Disney's link-up with ABC/Capital Cities, have highlighted the undervaluations of similar UK stocks. But what has really lit a fire under the sector is the new broadcasting bill, which is set to replace the limit on the number of ITV franchises any one company can hold with a 15 per cent cap on its share of the television audience. NatWest Securities believes the industry could consolidate into three players by the end of the year and just one by the end of the decade. That leaves smaller players looking vulnerable. Yorkshire Tyne Tees, where Granada owns 25 per cent, and HTV, which could be snapped up by the MAI-United News grouping, look ripe.

However, Carlton, the London and Midlands television franchise holder, is the shark in this pool of tiddlers.

Elsewhere in the wider entertainment sector, EMI, with its lucrative list of recording stars and music rights, looks a sitting duck when it is demerged later this year by Thorn-EMI. The merchant bankers have also clearly been running their slide rules over Pearson, which is an obvious break-up candidate with its amorphous mix of merchant banking to theme parks. Bidders for both of these are likely to come from outside the UK, with Disney, Rupert Murdoch's News Corporation, Reuters and Sony all possible candidates.

Ladbroke and Rank, two of the tired old men of the leisure sector, could also be broken up with relative ease, although some of the assets might be hard to sell. More juicy would be JD Wetherspoon and Regent Inns, pub groups spawned of the Government's beer orders. Parts of all four of these groups would fit well with either Bass or Whitbread, where leisure is seen as a growing part of the business.

Other sectors which have seen some of the hottest takeover action in the past year are still bubbling away, albeit at lower levels. Royal Bank of Scotland could prove vulnerable to HSBC as the Chinese takeover of its Hong Kong heartland approaches next year. Its Edinburgh neighbour, the Bank of Scotland could be similarly placed, but investors may miss out on other takeovers in the financial services industry. The targets of the budding financial conglomerates seem to have shifted to mutuals like building societies and life companies, where Clerical Medical and Scottish Amicable could soon succumb to bids.

Utilities went through a massive restructuring last year and it is hard to see that being repeated in 1996, despite Wessex Water's indication that it is ready to move on South West Water. At the fringes, there could be link-ups between adjacent water groups, releasing benefits of scale from shared overheads, but the industry continues to absorb large quantities of cash, making it difficult for debt-financed bids to succeed.

The problem for investors is to spot any remaining value among the speculation. With shares just below record highs, it is difficult to find any corners of the market which remain untouched by the fever.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Under the skin: Sarah Kane in May 1998
theatreThe story behind a new season of Sarah Kane plays
Arts and Entertainment
Preening: Johnny Depp in 'Mortdecai'
filmMortdecai becomes actor's fifth consecutive box office bomb
Sport
Bradford City's reward for their memorable win over Chelsea is a trip to face either Sunderland or Fulham (Getty)
football
News
Lars Andersen took up archery in his mid thirties
video
Voices
Focus E15 Mothers led a protest to highlight the lack of affordable housing in London
voicesLondon’s housing crisis amounts to an abuse of human rights, says Grace Dent
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project