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Why Cubic Jumped More Than 25% Today

By Howard Smith – Sep 21, 2020 at 11:49AM

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The company revealed acquisition interest from Elliott Management.

What happened

Shares of defense and transportation technology systems company Cubic (CUB) are up 25% as of 11:10 a.m. EDT. 

So what

In an announcement today, the company disclosed a stake by activist investment manager Elliott Management, and said it had adopted a limited-duration shareholder rights plan, saying it believes it has "excellent" prospects as a stand-alone company. 

business colleagues fitting multicolored gears together

Image source: Getty Images.

The shareholder rights plan does not prevent the board of directors from considering any fair offer that is in shareholders' best interest, and does not deter any potential offer. Cubic said that Elliott, along with a private equity partner, has informed the company they have an interest in acquiring the company. 

Now what

Through direct purchases as well as derivative positions, Elliott now owns, or has exposure to, nearly 15% of Cubic's outstanding shares. 

Revenue for the approximately $1.5 billion company comes from both transportation systems and defense mission and performance solutions. In its response to the Elliott interest, Cubic said it believes "significant" future shareholder value will be driven by its NextCubic initiative, which aims to improve efficiencies, reduce leverage, and drive higher returns on capital through higher margins and recurring revenue. 

Cubic's lead independent director, David F. Melcher, said the board's focus was on "creating long-term value and ensuring that our shareholders are able to realize the full potential of their investment." 

He said the adoption of the shareholder rights plan, which is now in effect for one year, was meant to allow time for informed decisions regarding any offers, without any third party taking control "in a manner and at a price that are not in the best interests of Cubic's shareholders."

Howard 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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