The Well-Informed Trader: Signs of a Takeover Candiatate
Once one determines that a stock is a candidate under the BUV criteria, there are several other inidcators worth checking out:
Form 13D - This lists stock acquisition of 5% or more of a commpanies shares. Its even more telling if the individual is one of the known raiders (Pickens, Icahn, Edelman, Steinburg, Perelman, KKR, Bass family, etc.)
Other signs include selling below book value
Low or zero debt
P/E under 10
Price less than 7 times cash flow/share
Strong balance sheet, 2:1 current ratio, large cash accounts
No pension fund liabilities
Unhappy shareholders (lawsuits, etc)
At or near 52 week low
Management or Insiders own less than 5%
Mutual Funds own 10% or more
other takeovers in the same industry
Real Estate carried on book at historical cost
A good example of the last was Northrup. When a known raider started courting them, it raised some serious concern in the military (the San Diego plant produces fighter aircraft) and eventually the whole thing was stopped when the raider was told he couldn't sell off the business in pieces, but had to maintain its production readiness. One of the reasons was obvious, the company was going to be bought for about $2 billion, while it was sitting on about $6.5 billion worth of property straddling the San Diego Airport and oceanfront.
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