Shares of Cubic Corporation (CUB), a defense contractor, rose roughly 10% in early trading on March 22. The interesting thing is that stock had a similar price advance in early February and both moves are tightly related to each other.
In February Cubic announced that it had agreed to be bought out in a $2.8 billion deal, including debt, by private equity shops Veritas Capital and Evergreen Coast Capital Corporation. The key figure to remember here is that the buyout price was $70 per share. Investors were pleased with the all-cash offer and pushed the stock price higher, as you would expect. So far so good.
With that background, we come to today's announcement that Cubic has received an unsolicited offer from Singapore Technologies Engineering with a price tag of $76 per share in cash. That's an 8.5% premium to the previous offer and Cubic has determined that it could "lead to a superior proposal." As such it is going to start talking to its new suitor about the higher offer, as is allowable under Cubic's pre-existing merger agreement. The deal appears more complex, as it specifically involves a post-acquisition sale of assets to another company. Veritas and Evergreen could, obviously, increase their bid to ensure that their deal doesn't slip away. However, what happens from here is anybody's guess. That said, it seems that investors expect a higher sales price to be the end result, regardless of what group ultimately ends up buying Cubic.
It looks like Cubic is in play, with two suitors competing for its affections. This could develop into a bidding war... or not. It's hard to tell at this point in time. However, investors clearly liked the update that a second player has entered into the chase.