Technology company NeuStar is the Local Number Portability Administrator (LNPA), managing the Number Portability Administration Center (NPAC), which allows consumers to keep the same telephone number even when they switch providers. It was the world’s largest number portability registry and the only such provider under seven regional contracts. However, in 2015, the Federal Communications Commission (FCC) chose another company, Telcordia, to be the sole LNPA in the US. The change naturally affects the value of NeuStar, and the probable date of transition is very much at issue in this case.
The class for this action is all persons and entities who owned Neustar common stock on January 30, 2017, the record date for stockholders entitled to information about and to a vote on the proposal to adopt the Merger Agreement.
There have been delays in the transition from NeuStar to Telcordia. NeuStar will continue providing the services until it receives a termination notice, and the termination date must be 180 days after the notice. NeuStar does have other technology businesses, but after the termination, it will lose roughly $500 million in annual revenue.
In June 2016, NeuStar hired JP Morgan Securities as a financial advisor and announced it would separate the company into two entities. Certain other companies expressed an interest, but according to the complaint, eventually it came down to two parties.
One, known in the complaint as Company A, offered up to $29.50 cash plus a contingent value right (CVR) to a portion of the NPAC cash flows. The CVR could give shareholders as much as $9 additional per share if NeuStar retained the NPAC contract for a longer period of time. The other interested party was Golden Gate Private Equity, which offered $33.50 per share.
In the Proxy Statement filed with the SEC, NeuStar’s management estimated an NPAC transition date of September 30, 2018. Since Company A’s CVR payments would begin only on the day after this, NeuStar’s board rejected its terms. On March 14, 2017 stockholders voted to approve the merger with Golden Gate, and it was accomplished on August 8, 2017.
However, the complaint alleges that because of the omission of material information in the Proxy Statement, stockholders could not adequately evaluate the deal.
First, the complaint claims that NeuStar did not believe that the transition would take place on September 30, 2018, and that it submitted a Transition Report to the FCC stating that it was more likely to happen in 2019 or even later. The complaint says that this renders inaccurate other figures in the Proxy, such as financial projections.
Second, the complaint alleges that the Proxy fails to outline key assumptions underlying JP Morgan’s analyses, such as why it prepared its discounted cash flow valuation for June 30, 2017, even though it was prepared on December 13, 2016, and why it ignored the NPAC cash flows for the first half of 2017—an omission that reduces the company’s value.
In addition, the complaint points to conflicts of interest—with JP Morgan, 85% of whose fee was contingent on the deal going through; and with the members of NeuStar’s board, who stood to profit greatly from the deal with Golden Gate.
The complaint alleges that NeuStar’s real value was upwards of $42 per share, and that the omissions to the Proxy therefore violated the Securities Exchange Act of 1934 as well as SEC rules.