Australian Takeover Targets

Submitted by Share Trading on 26 March, 2006 - 10:01

Potential takeover targets in the Australian Equities Market

Stock analyst Citigroup Investment Research screens the Australian equities market for potential takeover targets, based solely on their "self-funding" screen. While this does not take into account "blocking stakes", it does provide a perspective on the value of such stakes. Stocks of interest include BHP, OST, OXR, TEL and ZFX. The parameters the analyst is looking for target companies that generate enough pre-tax earnings such that an acquirer, if borrowing the entire equity market capitalisation of the target firm, could use the target company's existing pre-tax, after interest earnings stream to fund the interest cost of that new debt. Debt internal to the target is assumed to be serviced from the target company's cashflow as prior to the takeover. Strong profit growth through reporting season, together with a still-low inflation and interest rate environment, combine to produce a long list of companies that could, in principle, be taken-over using a company's existing earnings to fund the interest cost of the debt. More than half the companies in the S&P/ASX 200 are potential "targets" in that sense. Based on the analyst's screen, prospective large-cap takeover candidates include (in alphabetical order): BHP Billiton (BHP - A$29.27; 1M), OneSteel (OST - A$5.06; 2M), Oxiana Resources (OXR - A$2.82; 1H), Telecom New Zealand (TEL - NZ$4.73; 2M) and Zinifex (ZFX - A$16.04;1H).