Why Shares of NeuStar Inc. Surged Today

By Timothy GreenMarketsFool.com

Image source: NeuStar.

Continue Reading Below

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

More From Fool.com

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.

10 stocks we like better than NeuStar When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and NeuStar wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of Nov. 7, 2016

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.