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
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat