mm and e capital

IF YOU you can predict them, mergers and acquisitions will no doubt ensure that your cup runneth over.

One only has to calculate the share price appreciation of companies that are subjected to takeover offers to realise the rich rewards prophetic punters are currently receiving.

Mere rumours late last year that BHP Billiton was set to launch a takeover of Rio Tinto sent the latter's share price from $107 to $149 in one morning. When Westpac announced a merger with rival bank St George last month, St George shares jumped from $26.65 to $34.15.

Shareholders in both takeover targets reaped a substantial windfall.

But for those who missed the boat -- the ones who watched in frustration as Rio Tinto and St George share prices climbed without their cash invested -- is it too late to join the party?

Have all the swift investors -- the ones who saw it coming, or those who were quick on the buy button -- wrung all the profits from these deals?

Treat each case on its merits, analysts advise. You just have to pick the right deal and ensure your timing is accurate.

Hedge fund specialist MM&E Capital has made a killing in recent years by throwing its clients' cash into mergers, both after the fact and before.

MM&E managing director Tom Elliott is a firm believer in investing in companies that are both the target of takeovers and the instigator of takeovers.

His firm is also trialling a fund that invests in companies they predict will be takeover targets in the short term.

In regard to returns, there is obviously no comparison between that speculative fund and MM&E Capital's major fund, which focuses on current mergers and acquisitions. The speculative fund wins hands down, but Mr Elliott says the less volatile firm merger fund is also producing strong gains.

He told The Sunday Telegraph the success of both funds proved shareholders in stocks that were currently under takeover should, in most cases, hang in there for greater returns.

Mr Elliott also suggested that -- again, in most cases -- it wasn't too late for those who had missed the boat.

"With companies that are being taken over, it's always best to hang on, because there's a 35 to 40 per cent chance that you'll get a higher bid -- and it's always worth waiting to see,'' he said.

"A more interesting issue is whether you should hang on to companies making takeover bids, as often the share price of the bidding company goes down during the bidding process because they are offering their own shares.

"Assuming the bids are successful, the jury is out. It's around 50-50 whether bids ultimately create value for shareholders. Some do and some don't.''

For a poles-apart comparison to back up Mr Elliott's 50-50 claim, potential investors need look no further than the disastrous AMP bid for GIO in 2004 -- which resulted in shareholders on both sides losing significant value -- and BHP Billiton's 2005 takeover of Western Mining Company.

The latter was an "unqualified success'', Mr Elliott said, and proof that successful mergers could be a win-win situation for all parties involved.

So how should investors view the plethora of mergers, acquisitions and takeovers currently on the table?