The UK stock market may be going through a rough patch following the credit squeeze and worries about the economy, but 2008 is still expected to be a bumper year for mergers and acquisitions.
Both small and large businesses will combine forces to achieve operational efficiencies and provide greater scale in the wake of further volatile trading conditions.
We've drawn up a list of likely contenders that could be on the receiving end of a bid during 2008.
JOHNSON MATTHEY
The catalytic converter market experienced a spot of heavy share trading in the week before Christmas on rumours of an approach by American group Dow Chemical. Analysts are divided as to whether a bid may emerge as Johnson Matthey won't be cheap to buy. Nevertheless, keep your eye on this stock.
SPORTS DIRECT
Sports Direct – it seems inevitable that deputy chairman Mike Ashley will take the business private after 2007's float fell flat on its face. He already owns 67.9% of shares and it seems many of the firm's institutional investors would be happy to sell out as the stock performance has been terrible.
BLACKS LEISURE
Blacks Leisure – the camping equipment specialist could hitch a ride with Sports Direct out of the stock market. Ashley's group owns 29% of Blacks and could easily integrate operations to increase its presence in the retail leisure market.
DEBENHAMS
A retail entrepreneur could be preparing a joint bid with Icelandic investment group Baugur for department store group Debenhams after revealing a 7.3% stake in the business. Investment vehicle Milestone Resources Group – which bought the shares - is understood to have links with Mahesh Jagtiana, who owns more than 600 shops in India, Spain and the Middle East through the Landmark Group. Jagtiana is believed to working with Baugur, which has a 13% stake in Debenhams and owns House of Fraser.
WOOLWORTHS
'Only a madman would buy this company', said one City commentator who wished to remain anonymous, but there's still a chance it will be taken out. The share price has more than halved in the past year, which could prompt a chance bid. Woolies rejected a private equity approach in 2005 of between 50p and 55p a share. In hindsight, this bid should have been accepted as the stock price is now around the 12.25p mark.
CABLE & WIRELESS
France Telecom has long been seen to be the likely predator as bid rumours intensify on the group. While an offer hasn't been made yet, 2008 could be the year that the UK telecoms group is finally snapped up. It has already indicated that a demerger could be on the cards this year, which should be the catalyst for a takeover bid.
UNIQ
The food manufacturer attracted interest from Duke Street a few years ago, but nothing happened because of a nasty pension deficit. This has now been sorted out, which could prompt Duke Street to take another look. It already owns close to 10% of Uniq's stock, which is a nice position from which to launch a bid.
BOVIS & REDROW
Shares in the housebuilding sector have collapsed in recent months as high interest rates and lower credit availability start to deter property purchases. We reckon both Bovis and Redrow will be the first companies on the list for opportunistic bids in the wake of this price weakness.
MICHAEL PAGE & HAYS
The staffing sector has also been hard hit as investors question whether employers are losing confidence in the state of the economy, and thus reduce hiring. Both Michael Page and Hays are among the best UK recruitment agencies, in terms of past performance and brand strength. Expect to see interest from European or even Asian rivals looking to expand or strengthen their global coverage.
N BROWN
We predict the retailer, best known for selling underwear for large ladies, will get a takeover bid from rival group Findel. There are similarities between their home shopping services, which combined would create a stronger operation.
ENCORE OIL
Star Energy recently exercised an option to increase its stake to 50% in EnCore's gas storage assets in the North Sea. The latter is in the process of demerging that arm of the business into a separately quoted company but given that Star is itself currently being pursued by Malaysian state oil firm Petronas, it may be snapped up before it gets that far.
BG GROUP
The natural gas producer is another long-term recipient of bid rumours. It keeps denying talk of an approach but the 0.5% stake purchase by the People's Bank of China in November reignited talk in the City. Royal Dutch Shell, the Russian gas giant Gazprom and Brazil’s state-owned Petrobras have also been suggested as potential predators.
ASOS
The online shopping retailer is a firm favourite at Shares Magazine, with our retail correspondent John Marshall having first tipped them in the early days below 10p. The price today is around 235p after seeing incredible earnings growth in the past few years. Mr Marshall may not be able to write about them for much longer as the company is in the sights of large-scale clothing retailers. H&M has been suggested as a likely bidder as it lacks a decent web operation but has plenty of customers using its high street shops. Match the two companies together and the tills should continue to ring.
There's plenty more of ideas to consider, such as pharmaceutical group Shire, supermarket Sainsbury's and sweets maker Cadbury's. Don't forget the existing businesses in takeover play, such as mining giant Xstrata and retailer Moss Bros.
