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Why Virtusa Stock Just Jumped 24%

By Rich Smith – Sep 10, 2020 at 3:50PM

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It's a buyout!

What happened

Shares of IT consultant Virtusa (VRTU) are up 23.8% in 9:55 a.m. EDT trading on news that private equity firm Baring Private Equity Asia (BPEA) will acquire the company in a merger transaction valued at $2 billion. 

So what

BPEA will pay $51.35 cash to acquire all outstanding shares of Virtusa. In a statement, Virtusa confirmed that its board has unanimously endorsed the bid as the best out of roughly a half-dozen offers received to acquire the company over the past two months.

Thanks to the premium contained in BPEA's bid, Virtusa stock has now erased all of its losses over the past year and returned shareholders to roughly breakeven.

Person finishing up a wall painting that depicts a large yellow fish eating a smaller yellow fish.

Image source: Getty Images.

Now what

Assuming that Virtusa's shareholders approve the buyout, regulators give it a green light, and The Committee on Foreign Investment in the United States (CFIUS) doesn't object, this merger should close sometime in the first half of 2021.

Virtusa shareholders are already able to sell today for north of $50 a share, so holding onto the shares through closure and awaiting a cash out will add only about 2.3% to the value of these shares. Nine months seems a long time to wait for such a piddling profit -- making today a good day to sell.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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