Shares in engineering products group Delta soared last week after it flushed out a prospective bidder for the company.
Specialist engineer TT Group, which last month revealed it was seeking bolt-on acquisitions in the UK, US and Germany, has built up a 1.4% stake in Delta.
The bid speculation helped Delta shares gain more than 20% last week, but at 126p they were still well adrift of their June high of over 340p.
TT refused to reveal its intentions, but has previously said it would only take stakes in businesses that fit well with its operations.
TT makes sensors, resistors and electronic systems for car manufacturers. It also has a power technology business that makes cables and generators.
Analysts said TT and Delta have several areas of common interest, but questioned whether TT could afford a bid. At its 99.5p low, before TT’s interest was known, Delta was worth £150m.
TT said last month it could spend £145m to expand its electronics division and meet forecast growth in demand from the automotive sector.
‘The share price doesn’t reflect the value of Delta’s businesses,’ one analyst said. ‘A bidder would also have to take on some debt, making Delta a more expensive proposition for TT.’
Delta is seen as vulnerable to a bid approach, even if TT’s interest proves fruitless.
Broker Merrill Lynch issued an intermediate-term ‘accumulate’ note on Delta, upgrading its previous stance from neutral.
The City’s lack of enthusiasm for Delta was reinforced last month when it revealed a sharp fall in profits, with a pre-tax profit of £23.2m on £139m turnover, compared with £33.1m a year before.
Chief executive Jon Scott-Maxwell blamed a £10.5m hit from the strong pound and Asian economic turmoil for the reduction.
Delta is set to spend another £4m this year on restructuring, with about 130 jobs expected to go.