What happened
Shares of NCR (VYX 1.04%) rose as much as 15.5% on Tuesday. As of 12:15 p.m. ET, the stock was up about 13%.
The sharp move higher followed a report from The Wall Street Journal stating that private-equity firm Veritas Capital was in talks with the information technology company about potentially buying it out. The talks, according to WSJ's unnamed sources who are "familiar with the matter," are allegedly exclusive.
So what
Investors, however, shouldn't count on the deal closing. Not only does it reportedly involve a significant amount of leverage -- increasing the odds of something going wrong compared to an all-cash agreement -- but the Journal said the deal could be weeks away from closing (if it does at all).
As for the stock's move higher, deals to take publicly traded companies private are usually transacted at a price representing a premium to where the stock is trading before the agreement is announced. Some investors, therefore, may be trying to buy the stock ahead of a potential agreement in hopes of making a profit.
Now what
Investors would be wise to avoid trading the stock based on a buyout rumor. Not only is a deal far from certain, but the price is unknown, and the deal has a risk of falling apart even after an initial agreement is made. Furthermore, risks to leveraged buyouts are higher now than they were in previous years due to the higher cost of debt.
