Tomkins
INVESTORS might be giving their Canadian suitors a chilly reception, but this really is a no-brainer. The 325p bid offers a premium of 41 per cent on Tomkins’ pre-approach price, and a rich valuation of 15.8 times earnings per share in 2010. A rival is unlikely to trump this generous bid, and the cautious outlook from management suggests it will be unable to increase the share price in the short term should it go it alone. Having booked an impressive first half, things are looking bleaker for Tomkins; slow growth in emerging markets, lower European car output, and softer US manufacturing will all conspire to make the rest of 2010 tough for the British engineer.
Although a bidding war for Tomkins is improbable, there are sure to be more bids for British engineers coming across the Atlantic. Firms in this sector trade on a lower multiple than their North American rivals, while strong US companies are finding it much easier to raise debt. Low yields on US government debt and a dearth of M&A activity are helping push up demand for high quality corporate bonds, while weaker sterling makes firms in Blighty an increasingly attractive target.