Following the recent wave of mergers and acquisitions activity, Citi strategistsunveil a list of potential takeover targets in Europe, based on a screeningusing the level of profits generated by the targets.
"There are three catalysts to the recent increase in activity. Two have beenin place for some time: valuation and funding. The third has only recentlyemerged: confidence," Citi strategists write in a note.
"We screen for companies that generate enough pre-tax earnings such that anacquirer, if borrowing the entire equity market capitalisation of the targetfirm, could use the target company's existing pretax, after interest earningsstream to fund the interest cost of that new debt."
While most deals are not exclusively debt funded, the strategists sayfocusing on the potential funding is "a good starting point to whittle aninvestable universe down to a sub-set of possible targets."
Among the top European targets on Citi's list feature Eni, RoyalDutch Shell, Rio Tinto, AP Moller Maersk, BMW, Michelin, Renault, BASF and Safran.
Reuters Messaging: blaise.robinson.thomsonreuters.com@reuters.net