Following the approach by Rupert Murdoch’s REA for Rightmove, analysts at AJ Bell have highlighted four FTSE 100 companies could that also be potential takeover targets.
London’s equity market is being picked apart by overseas buyers who see underlying value in UK-listed companies that London’s public markets are unable or unwilling to offer.
AJ Bell analysts have shortlisted companies with similar attributes to Rightmove that may attract the interest of potential bidders. The characteristics observed in these companies include share price underperformance and a spell of bad news that has weighed on sentiment.
The potential FTSE 100 takeover targets highlighted by AJ Bell are:
- Burberry
- Entain
- Diageo
- Whitbread
In his own words, Dan Coatsworth, investment analyst at AJ Bell, explains the reasoning behind each company being classified as a potential takeover target:
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.”