- Potential FTSE 100 takeover targets.
- Rightmove is sixth possible FTSE 100 takeover situation in 2024.
- Bids triggered by share price weakness is a common theme.
- Burberry, Entain, Diageo and Whitbread among potential bid candidates.
“REA’s interest in potentially buying Rightmove represents the sixth possible takeover situation for a FTSE 100 company this calendar year. We’ve already seen confirmed bids for the likes of Anglo American, Darktrace and DS Smith, as well as speculation that several parties have been sniffing around Hiscox,” says Dan Coatsworth, investment analyst at AJ Bell.
“Uniting all of them, excluding Hiscox, is a lacklustre share price ahead of the takeover interest going public. The suitors have pounced on the respective companies while their shares were held back by various bits of bad news, taking the view this was a rare opportunity to buy a business cheaper than it might normally trade.
“While BHP ultimately failed with its attempt to buy Anglo American, the other confirmed bids look as if they will go through. This raises the question of which other companies in the FTSE 100 might be takeover targets because of share price weakness. The most obvious ones are Burberry and Entain. Others to watch as potential bid targets include Diageo and Whitbread.”
FTSE 100 stocks with negative 12-month returns
“Twenty-two companies in the FTSE 100 have seen a negative share price performance over the past 12 months, a period when the UK index has increased by 12% in value.
“Some of these companies have suffered mistakes of their own making, others have been hit by weakness in their end-markets.”
BURBERRY
“Burberry’s shares have fallen by 70% in value over the past 12 months. The stock is trading at a 14-year low, making Burberry vulnerable to a takeover approach.
“Any potential bidders would have to see through near-term problems and be confident in the company’s ability to get back on track.
“The decision to take Burberry more upmarket and then heavily discount products to shift unsold stock was a bad move. While shoppers love a bargain, discounting can tarnish a luxury brand as it is perceived to be less desirable.
“Making matters worse was a lacklustre economic rebound from China post-pandemic, given the country has historically been a rich source of earnings. A new management team has been appointed to steady the ship.
“What makes Burberry appealing to a potential buyer is the enduring appeal of its products. There is instant brand association with its chequered patterns. While styles go in and out of fashion, Burberry’s products have stood the test of time and a potential buyer will be focused on the long-term prize.”
ENTAIN
“The Ladbrokes owner has previously been subject to takeover interest from MGM and DraftKings, but neither suitor managed to place a winning bid. Since then, Entain’s share price has lagged many of its peers and left it a sitting duck for a third party to swoop on the business. Buying Entain would be an easy way for a rival company to greatly increase scale, something that really matters in the gambling sector.
“The stock is down 45% over the past 12 months, partially dragged down by a bribery investigation and losing share in the lucrative US market. The company has also faced accusations that it overpaid for acquisitions.
“A new CEO joins this week, which raises the prospect of a sweeping review of the business and potentially some strategic changes. The pressure is already on, given activist investors on the shareholder register.
“One might ask why any potential bidders haven’t already shown their cards this year given the share price weakness. It might be that they want to see a repair job at Entain before swooping in.
“While that might result in a bidder paying a higher price than now, certain suitors might view this strategy as sensible, given it arguably means an offer is only made once risks have been lowered.”
DIAGEO
“Shares in Diageo are down 23% over the past 12 months thanks to disappointment around performance in Latin America and questions over the company’s leadership qualities. In July, it reported an operating profit decline in four out of its five operating regions, two of them in substantial double-digit territory.
“Management seems to have taken its eyes off the ball when it comes to monitoring inventory levels and working out ways to keep consumers spending.
“The most recent results didn’t include a new share buyback programme, which troubled investors. That’s not a surprise given the balance sheet is close to getting out of the company’s comfort zone. Diageo targets 2.5 to 3 times net debt to adjusted earnings and the leverage ratio is now sitting at the top end.
“While the current news flow is fairly gloomy, Diageo could be a takeover candidate for a bidder looking to own a portfolio of well-known drinks brands and wanting to pick up an industry giant at a big discount to where it has historically traded. The key sticking point is the fact such a takeover deal would require a significant cash outlay, even if the bidder got a bargain price.
“Diageo is currently worth £55 billion. Apply a potential 30% bid premium and a suitor would need to stump up a very large amount of money. One route might involve breaking up Diageo, with a beer company taking on Guinness and another company taking on the spirits brands.”
WHITBREAD
“It’s not been the best time for the Premier Inn owner, with its share price down 17% over the past 12 months. The market has been worried about a lack of organic growth in its UK operations and that we won’t see a major improvement any time soon. German operations are performing better but they only account for small part of the group.
“While some investors will be disappointed at the company’s situation, there is the potential for Whitbread to be on the radar of private equity or an overseas-based operator looking to get ahead in the UK through buying one of the country’s best-known hoteliers.
“The shares are trading on a low rating of 12.2 times consensus earnings for the year to February 2026. That bargain-basement rating, together with weak market sentiment towards the stock, could be enough to draw out a bid. Premier Inn is front of mind for consumers looking for affordable accommodation and scores well with tourists seeking decent, reliable hotels when visiting the UK.”
