DrKW identifies takeover targets

Dresdner Kleinwort Wasserstein has identified nearly a fifth of its UK-listed universe as potential takeover candidates. The report, “UK Equity Strategy: Potential hot targets as M&A heats up”, said that the UK market was awash with actual and rumoured takeover activity. The value of M&A activity in the UK was nearly at year-2000 levels based on cheap, plentiful liquidity and strong equity markets, it said.

Karen Olney, European and UK equity strategy at DrKW, said most attention had been concentrated on small and mid-cap and lower quality companies. But she added that large caps could also become targets as the cycle matures if equity markets struggled in the face of high oil prices, corporate earnings slowed and inflation concerns arose.

The DrKW list highlights 55 stocks out of a universe of 290 companies. Olney said all of those could be targets, but in the report she identified two baskets of higher quality “trophy” companies and a lower quality basket.

Those in the high quality basket include chemicals company BOC, which is being eyed by Germany’s BASF and, after inconclusive talks last year, Linde; construction companies Taylor Woodrow and Wilson Bowden; and retailers Alexon, Topps Tiles and Electrocomponents.