I have seen way too many "headline" traders misreading the headlines for Neustar (NSR).
NSR's orignal proposal is still on the table, along with Telecordia's. They DID NOT lose the contract, which makes up 50% of their business. The company made a mistake and ASSUMED that the NPAM was taking revised proposals, which they were not, so they simply returned it to NSR unopened. IF NPAM would have accepted the proposal, telecordia would have sued the crap out of NPAM. It is a very complicated and long negotiation. In my opinion, NSR has had all the negotiating power for the last 15 years and NPAM wants to swing that power. I think NSR submitted a bid with a high price, thinking they could revise lower at a later date and NPAM did not like NSR taking them to the woodshed over pricing.
IMO, I think the probability of NSR winning the contract at 99%. It would been an UTTER disaster and actually not up and running properly for some time (ie they have 15 years to make up) if they gave the contract to Telecordia. This news will delay the process and most likely cause pricing to be down 25%, vs my expectations of down 10-15%, but will still have price escalators in the out years.
I actually do not know what their FCF would be less the NPAC contract, but it is 50% of their revenues with very high margins. If they did lose 100% of the contract, unlikely IMO, they would do EPS of 1.50-2.00 in the 2016 year period with revs and eps growing 15% and actually probably warrant a higher multiple. Worst case scenario IMO, is that NSR loses 1 or 2 small regions to telecordia, while NSR keeps the bulk of the contract. However, India is the only country with 2 operators (1 being telecordia) and it is a complete disaster. Numbers cannot be ported between telecordia and syniverse, and take 7 days if done inside one of the operators.
I haven't even brought up that Telecordia is owned by Ericson, which means they don't even qualify as Neutral. NSR meets over 150 different requirements for neutrality, and they go deep and are of the utmost priority of NPAM!
Hope this is helpful and doesn't come across to harsh. These headlines are just pissing me off because unless someone has inside information that NPAM and NSR don't have, the contract has not been decided at this point.
The risk reward is in favor of the longs at this point, IMO.
Disclosure: I am long NSR.
Additional disclosure: The opinions expressed in this article are those of the author as of the date the article was published. These opinions have not been updated or supplemented and may not reflect the author's views today. The information provided in the article does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular stock or other investment.