Nearly 100 takeover targets for 2011, Morningstar says

Nimble investors could jump on some attractive acquisition candidates ahead of the unfolding 2011 takeover wave, according to the latest research from Morningstar Inc. After studying the “inklings of [an M&A] revival in 2010,” Morningstar deputy director of research R.J. Hottovy said deals in the year ahead will be larger and more plentiful than in the past few years. Morningstar identified nearly 100 companies that it deemed takeover targets. In addition to considering the record levels of cash sitting on corporate balance sheets and in leveraged-buyout firms, and the funds of private-equity firms — all of which supports mergers-and-acquisitions activity — the research identified specific targets based on valuation and balance sheet scenarios. By sector, the report identified communication services, health care, utilities and banks as the most attractively valued categories. However, Mr. Hottovy explained, attractively valued companies can be found in virtually every sector. The energy sector, for example, is listed as the second-most-fairly-valued category, behind basic materials. Yet, four of the 10 most likely acquisition targets identified in the report are energy-related companies. Those companies are Cloud Peak Energy Inc. Ticker:(CLD), Constellation Energy Group Inc. Ticker:(CEG), Petrohawk Energy Corp. Ticker:(HK) and Range Resources Corp. Ticker:(RRC). Rounding out the top 10 in alphabetical order are Actelion Pharmaceuticals U.S. Inc. Ticker:(ATLN), American Eagle Outfitters Inc. Ticker:(AEO), Clearwire Corp. Ticker:(CLWR), Leap Wireless International Inc. Ticker:(LEAP), Myriad Genetics Inc. Ticker:(MYGN) and SunTrust Banks Inc. Ticker:(STI). “We expect some of the key M&A themes to include interest in emerging markets, companies that have mastered a unique niche in their respective industries, and the ability to generate free cash flow,” Mr. Hottovy said. Along those lines, the report singled out as attractive targets Mead Johnson Nutrition Co. Ticker:(MJN), which makes baby food, and Millicom International Cellular SA Ticker:(MICC), a wireless telephone service provider. In industries of high cyclicality, companies that have carved out a particular niche within a sector could be attractive, Mr. Hottovy said. As examples, the report listed asset management firm Eaton Vance Corp. Ticker:(EV) and AptarGroup Inc. Ticker:(ATR), a provider of consumer product dispensing systems.