Shares of Michael Kors Holdings (NYSE:KORS) climbed 5% in one day after rumors of a possible takeover by an unknown bidder. The Spanish website intereconomia.com said KORS’s management is studying a $10 billion offerreceived last week. After the news the stock price moved from $47.52 to the current price above $50. The rumors imply an offer of about $59 per share, about 18% above the price before rumors.Honestly, this offer would be too low in my opinion. Just consider where the stock was trading just one year ago, or the targets of some investment banks that have recently covered the stock. Piper Jaffrey put a $69 dollars target and Jefferies believes the stock should trade at $75.Discussing about rumors is not very helpful. Nonetheless, I think the news has given us the opportunity to analyze KORS from a new perspective. While I think no stock should ever be bought exclusively because we think it could be a takeover target, such possibility is a good added catalyst for a stock with good fundamentals and a strong competitive position.There are many factors a potential acquirer could be interested in, and they clearly change case by case. Anyway there are some common characteristics of good takeover targets that we could check to assess MK’s attractiveness as a takeover target.
Good takeover targets usually have a clean capital structure. Companies with large amounts of convertible bonds, several classes of common or preferred stocks or that are exposed to a large amount of “overhang” are usually not good takeover targets, because of the risks of share dilution. Since the company doesn’t have preferred shares or convertible bonds, the only thing we have to assess is whether the overhang level is acceptable or not.Please press the orange button above if you want to get my articles as soon as they are published. I am going to be focused on writing articles that can give readers useful information and analysis on stocks and industry trends, mainly in consumer-related industries, such as sportswear, fashion, media and a few others.