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Why Cubic Stock Just Popped 10%

By Rich Smith - Feb 8, 2021 at 2:13PM

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It's a buyout!

What happened

Shares of defense contractor Cubic Corporation ( CUB ) jumped in Monday trading and are up 9.6% as of 1:30 p.m. EST. The company announced this morning that in its fiscal first quarter of 2021, its sales declined 3% to $319 million, and it lost $0.41 per share -- but obviously, this isn't the reason investors are excited.  

They're excited because Cubic is getting bought out.

Wall painting depicts a large yellow fish eating a smaller yellow fish

Image source: Getty Images.

So what

As management advised, it has just signed a definitive agreement to sell Cubic Corp. to private equity firms Veritas Capital and Evergreen Coast Capital Corporation (an affiliate of Elliott Investment Management L.P.) for $70 a share -- or $2.8 billion in total, including the value of assumed debt.  

Cubic noted that this purchase price represents "a premium of approximately 58% to Cubic's unaffected closing stock price on September 18, 2020, the last trading day before the Company's disclosure of third-party interest in potentially acquiring Cubic."

Now what

Under the terms of the agreement, Cubic's buyers will pay in cash, and investors can expect to be cashed out when the transaction closes sometime before the end of June.

The fact that Cubic stock is now trading within a dollar of the announced value indicates that investors have a high level of confidence that shareholders and regulators alike will approve this transaction to go forward. So, unless you really need that last $0.70 or so difference between the stock's current price and its buyout price, there's little reason to wait around for the transaction to finalize.

It's probably safe to go ahead and sell now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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