Why Shares of NeuStar Inc. Surged Today

Image source: NeuStar.

What happened

Shares of information services provider NeuStar Inc. (NYSE: NSR) jumped on Wednesday after the company agreed to be acquired by a private investment group. The stock was up almost 20% at 11:15 a.m. to about $33.08 a share, just shy of the offer price.

So what

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Golden Gate Capital is leading the investment group paying $33.50 per share in cash for NeuStar. That price represents a 45% premium to the stock's closing price on Nov. 11, the day before Golden Gate disclosed that it had an equity position in the company. The transaction is valued at $2.9 billion including debt.

According to NeuStar, its strength lies in its hard-to-replicate datasets:

The transaction is expected to close by the end of the third calendar quarter of 2017. NeuStar will have 30 days to solicit alternative proposals.

Now what

NeuStar CEO Lisa Hook believes the transaction is the best way for the company to execute its long-term strategy:

The offer price, which values NeuStar's equity at about $1.85 billion, is just 11 times the company's net income in 2015. Operating income has been roughly flat since 2012, however, and profitability has taken a hit in so far this year. In the third quarter, NeuStar produced operating income of $67 million, down from $81 million in the prior-year period. While revenue is still growing, slumping profits may be the driver behind the depressed offer price.

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