Just when you thought the market may be running out of puff following the robust market rally in FY17, a raft of takeover news is giving the ASX a second wind – at least for underperforming mid-cap stocks.
While capital is getting more expensive, money is still reasonably cheap and this is one of the reasons why bidders are sniffing around.
However, I think mega deals are off the table as large cap valuations are far from bargain territory and the higher cost of capital makes such acquisitions that much trickier to pull off.
But the same can't be said about small and midcaps.
The latest stocks in the takeover spotlight include leisure facilities operator Ardent Leisure Group (ASX: AAD), which saw its share price surge yesterday on news that Sun Hung Kai Global Opportunities fund has become a substantial shareholder with a 5.3% stake.
While telecom and utilities group Vocus Goup Ltd (ASX: VOC) has today agreed to give private equity group KKR non-exclusive access to its books to illicit a binding offer. Elsewhere, financial services company Pepper Group Ltd (ASX: PEP) has received a non-binding takeover offer from US-based KCA.
The problem is that there is a lot of "M&A smoke" in the market as a number of high profile takeover candidates have been abandoned by suitors. These include media group Fairfax Media Limited (ASX: FXJ), clothing retailer Specialty Fashion Group Limited (ASX: SFH) and foreign exchange disruptor OFX Group Ltd (ASX: OFX), just to name a few.
The question is which approach is more likely to lead to an actual deal? Each case has its own merit but I suspect the probability of a change of control of Ardent Leisure must be one of the highest in the group – not that I think it is a good idea to invest based on takeover appeal.
For one, there is significant amount of ill-will towards current management. This has been building for some time since the appointment of Deborah Thomas as the CEO and her subsequent resignation.
Secondly, Hong Kong-listed Sun Hung Kai & Co is closely connected to Mulpha and the head of Mulpha Australia is none other than ex-Ardent Leisure boss Greg Shaw, according to The Sydney Morning Herald.
There will be a number of shareholders (including myself) who would welcome Mr Shaw back to his old job given that he has done an excellent job during his tenure at Ardent Leisure.
In many respects, Vocus' management is also under pressure due to the mismanagement of the business since the merger with M2 Group, but I think feelings are rawer at Ardent Leisure and the support of key shareholders is always instrumental to the success of any hostile takeover.
