Analyzing an Acquisition Target: Kingfisher plc (KGF)

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Acquisitions are one of the most exciting things that can happen to your stock portfolio. Often these events result in the acquired company seeing a double digit percentage gain overnight. While investors would be wise to avoid investments purely because they are the speculation of takeover chatter, there is nothing wrong with investing in good, well-run companies that have the added kicker of being the potential target of a larger peer or a private equity firm. For that reason, I would like to discuss the takeover prospects of UK company Kingfisher plc (LON:KGF), Europe’s largest home improvement retailer, and the world’s third largest.

The King of Europe

While readers are likely very aware of The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW), the world’s No. 1 and No. 2 home improvement retailers, respectively, Eurasian heavyweight Kingfisher probably is not a household name in your neck of the woods. As mentioned above, UK-based Kingfisher is Europe's largest home improvement retailer. It operates its home improvement business under the B&Q, Castorama, Brico Dépôt, Screwfix, Koçtaş stores, as well as selling its own branded products inside of their stores. In the eight total Eurasian countries in which it operates, (the UK, Ireland, France, Spain, Poland, Turkey, Russia and China), Kingfisher has a total of 1,002 stores.

The Home Depot, Inc. (NYSE:HD)Business Improvements Although Europe had (and still has) a severe housing crisis of its own, Kingfisher’s new management set forth a plan in 2008 to deliver greater shareholder value. The plan included many of the same initiatives implemented by America’s home improvement giants: improving the customer service experience, creating more of an online shopping presence, streamlining the business to increase profit margins, and expanding their operations to new markets.

The results of that plan can be seen in the company's share price. Despite European uncertainty engulfing the whole continent, Kingfisher’s shares today have recovered completely from their 2008 lows.

International & Emerging Market Appeal

Even though Home Depot and Lowe’s operate internationally, Kingfisher is truly an international company. 64% of Kingfisher’s stores are located outside the United Kingdom, with 16.5% located in the emerging markets of Eastern Europe, Russia, and China.

And these numbers do not include Kingfisher’s equity interest in the German home improvement retailer Hornbach, with has 135 stores of its own located in the additional nine countries of Germany, Austria, the Czech Republic, Luxembourg, the Netherlands, Romania, Slovakia, Sweden and Switzerland. Including Hornbach’s stores, Kingfisher's total store count becomes 1,137 in 17 total countries, with 81% located outside the UK and 15.75% located outside of Western Europe.

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