Speculation continues on Wesfarmers making a takeover tilt at Insurance Australia Group (IAG).

In the past week IAG’s share price has shot up 10.5% to $3.13 today, but this is still well down on the $3.60 the insurer was commanding six months ago.

This has not stopped speculation that IAG would make a perfect fit for Wesfarmers if it wanted to expand its insurance division.

Both companies have denied there are any takeover talks, but that hasn’t stopped the market speculating.

Large fund managers dominate IAG’s share register and the National Australia Bank holds a 5% stake.

The institutional investors own almost 60% of IAG shares, with “mums and dads” (shareholders with less than 5000 shares) owning about 36% of the company.

While many fund managers will be looking for a quick profit and some mums and dads may have grown tired of waiting for the share price to rebound to pre-financial crisis levels, the big question is, what price are they looking for?

And would a cash and scrip offer from Wesfarmers be enough to tempt them to sell? This is especially important to the many institutional investors who already have the WA conglomerate in their portfolios.

The speculators pushing the IAG-Wesfarmers rumour also seem to have ignored Wesfarmers’ debt, which at June 30 stood at $4.3 billion.

A takeover of IAG, tipped at costing about $7 billion, would probably push debt out further at a time when banks are being more cautious on lending and increasing the cost of money.

But these are volatile times and the stockmarket is looking for some positive action to lift the pervading gloom.

Perhaps a Wesfarmers tilt at IAG might have something to do with what the stockmarket really wants in its Christmas stocking this year.