Vickers looks vulnerable to GKN bid

The continued weakness in the Vickers share price (181p) makes it look increasingly vulnerable to a bid. The favoured candidate remains GKN. The two companies have chatted in the past about an alliance but nothing of substance has materialised. Engineering industry insiders believe this is a function of GKN's ambition to secure an agreed deal given the sensitivity of Vickers' defence activities and its ownership of Rolls- Royce Motor Cars. Rolls-Royce, the aero engine manufacturer, has rights over the prestige motor marque that could complicate a change of ownership particularly if a bid for Vickers was hostile.

However, as the Vickers share price weakens, the temptation to put aside the risks associated with hostility grows. Under CK Chow, the chief executive, who took the helm in January, GKN has made no secret of its ambitions to expand the group across all its activities, and recent history shows that acquisitions are very much part of that process.

The logic of a bid is well rehearsed but it is the share price performance of the two companies that is most compelling. In early 1995 Vickers shares traded at a depressed 170p while GKN's price languished at around 550p. From that point onwards both shares took off. Vickers hit a high of 300p in October 1996. In the same month GKN peaked at 1,172p. Since then both shares have weakened but the broad correlation between the two has vanished. This month Vickers was down to 170p, its early 1995 level. GKN's low this month has been just 920p, well above those early 1995 doldrums.

Both companies are victims of a strong pound. Both companies, as engineers, are exposed to concerns about a recession in the next 18 months. The share price tells you that GKN (998.5p) is judged to be much better placed to deal with these difficulties.

If GKN resists the temptations of Vickers' lowly share price, others may be less considerate.

An engineering bid would make a welcome break from the continued speculation about takeovers in the banking sector. The most amusing but futile game in town is to pick a new bidder for National Westminster. However, more productive gossip is to be found elsewhere. The Scottish banks look particularly interesting where there is renewed chat that HSBC (2087.5p) wants to offload some its cash north of the border. The theory is that Sir William Purves, HSBC's chief and himself a Scot, is emotionally attached to the notion of bringing one of the home country banks into the HSBC fold afore he goes.

Anyone subscribing to this theory could do worse than look at Royal Bank of Scotland (631p) where HSBC has been rebuffed in the past. Even without a bid Charterhouse Tilney reckons the stock is due for a rerating.

The banking sector has been buoyed by takeover talk but also by an appreciation that it benefits from a low inflation environment. So far the new Labour government, aided by the Bank of England's Monetary Policy Committee, has shown it is prepared to carry on the fight against inflation. So far we have had an interest rate rise a month since Labour came to power and another one is expected next month. That has not helped those companies suffering from a strong pound and the list of businesses reporting that profits are hurting as a result of sterling's strength grows daily.

Watch then for investor attention turning to stocks with largely home grown earnings. A number of water company annual meetings this week will reinforce interest. The companies have taken the windfall tax in their stride and are back in vogue with some shares reaching record levels. As havens from the pound's strength there are worse refuges.

Start your day with The Independent, sign up for daily news emails
Voices
Barn owls are among species that could be affected
charity appeal
News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas