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Likely Takeover Targets

March 12, 2009 – Comments (2) | RELATED TICKERS: CMZ , TCK

Greetings again to everyone!

It's been a while since my last blog as I have been quite busy, but I did want to stop by and make a quick post.

Today I'm thinking about companies that are good candidates to be taken over by other buyers looking to step in and scoop them up while they're cheap.  I regret that my number 1 company for inclusion on this list when I originally intended to write this article, Nova Chemicals, has already been taken over.  While I was able to personally invest near the 52-week lows, I was unable to tell my fellow Fools... I hope some of you got in on it anyways.

My top 3 picks for possible take over come largely from the raw materials world.  These are excellent times for Chinese investors to make plays to secure their country's access to needed commodities, and I don't think Nova was the last one to go.

Pick #1:  Compton Petroleum (NYSE: CMZ , TSX: CMT) - I had the pleasure of speaking with the investor relations department and was able to confirm that Compton had been presented with a buyout offer back when the shares were trading at much higher levels.  The spokesperson told me that (paraphrasing) "We are uninterested in selling Compton at $10 per share.... now, if someone gave us $20, maybe we'd talk".   Needless to say, at current prices, $20 per share seems unlikely, but perhaps Compton might see an aggressive and uninvited takeover attempt from foreign fields?   In either case, the current price on Compton shares make a potential buyout very profitable for anyone willing to stomach the wild swings in oil. 

Pick #2: FNX Mining (TSX: FNX  Pinksheets: FNXMF.PK)  -  A mining company with $0 debt, over $100M in liquid cash, and a firm grip on nickel and coal production (as well as some other metals).  What's not to like here for a potential buyer?  A beat-up stock price, access to producing mines, and no hinderance of debt... seems like a no-brainer to me.   Yes, this company is looking at write-downs in the near term, but they should remain profitable on a real, cash-flow basis.   Even if a takeover is not in the works, this is one good investment for a 2-5 year term.

Pick #3: Teck Cominco (NYSE: TCK, TSX: TCK-B) - This is my third pick because, like Nova Chemicals, any interested buyer is going to need to understand that it's a longer-term pick.  Teck has a lot of debt and is selling off assets to help make their payments.  Poor prices for mining goods makes their near-term profitability chances a little bit grim, meaning, much like the Nova Chemicals deal, the interested buyer must be prepared to put a few extra dollars behind the company in order to restore it to its former glory.  However, the insanely cheap price which Teck trades at makes this risk more than worthwhile, in my opinion.   My guess would be a takeover from Chinese buyers, given the access to mines that this company can provide at the cost of some short-term hiccups.  I know I'm not the only person saying that Teck is a possible takeover target... I believe Jim Cramer may have recently made this guess as well.  It's just such a good fit for some potential buyer that it seems too good to pass up. 

 Well, there you go... my three top picks for a sudden jump in price due to take-over.   I have no inside information that suggests that this is going to happen with any of these three, just that common sense leads me to believe that it's likely.  If I was a buyer with a billion or two to throw around, I'd be grabbing up a couple of these companies for certain!

I own shares in all three companies.   I think they're all good purchases regardless of buyout possibilities, although the potential for a sudden jackpot is a little "icing on the cake".

Your comments are welcome!