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.

News
news

Emergency call 'started off dumb, but got pretty serious'

News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
people

Thought you'd seen it all after the Jeremy Paxman interview?

Sport
Erik Lamela celebrates his goal
football

Argentinian scored 'rabona' wonder goal for Tottenham in Europa League – see it here

News
people

Far-right organisation has defended its actions on Facebook

PROMOTED VIDEO
News
The cartoon produced by Bruce MacKinnon for the Halifax Chronicle-Herald on Thursday, showing the bronze soldiers of the war memorial in Ottawa welcoming Corporal Cirillo into their midst
news
Voices
Funds raised from the sale of poppies help the members of the armed forces with financial difficulties
voicesLindsey German: The best way of protecting soldiers is to stop sending them into disastrous conflicts
News
The Edge and his wife, Morleigh Steinberg, at the Academy Awards in 2014
peopleGuitarist faces protests over plan to build mansions in Malibu
News
peopleFox presenter gives her less than favourable view of women in politics
Property
One bedroom terraced house for sale, Richmond Avenue, Islington, London N1. On with Winkworths for £275,000.
property
Voices
Nigel Farage has backed DJ Mike Read's new Ukip song
voicesNigel Farage: Where is the Left’s outrage over the sexual abuse of girls in the North of England?
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
News
Mario Balotelli has been accused of 'threateningly' telling a woman to stop photographing his Ferrari
peoplePolice investigate claim Balotelli acted 'threateningly' towards a woman photographing his Ferrari
Arts and Entertainment
Paul Anderson plays Arthur Shelby in Peaky Blinders series two
tvReview: Arthur Shelby Jr seems to be losing his mind as his younger brother lets him run riot in London
Voices
Don’t try this at home: DIY has now fallen out of favour
voicesNick Harding, who never did know his awl from his elbow, is glad to see the back of it
Arts and Entertainment
Miranda Hart has called time on her award-winning BBC sitcom, Miranda
tv
Sport
Phil Jones (left) attempts to stop the progress of West Bromwich Albion’s James Morrison on Monday
Chelsea test can be the making of Jones and Rojo, writes Paul Scholes
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

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

COO / Chief Operating Officer

Competitive (DOE): Guru Careers: A COO / Chief Operating Officer is needed to ...

SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

Chief Financial Officer

120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker