Takeover season a good sign

A STRING of takeover offers have been knocked back by Australian companies, so is a trend emerging?

AGL rejected a $250 million bid from Chinese-owned Alinta Energy for Liddell coalfired power station in NSW; Santos knocked back US private equity giant Harbour Energy’s $14.4 billion takeover offer and Healthscope said the $4.35 billion bid by Canada’s Brookfield Asset Management undervalued the company and future performance.

These are important signs, as mergers and acquisitions typically happen when markets are strengthening. It is great for investors, as the excitement of an acquisition supports higher stock prices.

It is exciting to see company boards making strong decisions in support of shareholders. This is another sign that we are in an improving earnings phase.

When big private equity companies are on the acquisition trail, so should you be.

I am not suggesting you buy the companies mentioned, as you need to have rules to buy when the time is right. And never buy unless you know how you are going to sell, otherwise you may break one of the golden rules of investing, which keeps you safe.

What do we expect in the market?

Following the decline from the high in January of 6256 points, the All Ordinaries Index has managed to bounce back strongly to just below this level on May 15. Our market has earned a break, so it is good to see the XAO pull back this week to a low of 6120.8 points.

Given the strength of the previous rise, the market is likely to soften as we head to the end of the financial year.

Keep an eye on areas of the market that have been sold off heavily, as eventually they will present opportunities to buy. Dale Gillham is chief analyst at Wealth Within.