Report: Neustar ponders selling itself to private equity firms amid contract dispute

Neustar is considering selling itself amid interest from private equity firms, according to a Reuters report, as the company ponders its future while it battles Ericsson's (NASDAQ: ERIC) Telcordia unit to retain a key government contact for number portability.

The report, citing unnamed sources, said there is no formal sale process underway but Neustar is working with investment bank JPMorgan Chase on the issue.

The government contract at issue will decide which vendor is going to be the U.S. government's neutral and tested local-number-portability administrator (LNPA), which helps phone subscribers keep their numbers when switching carriers. Neustar has held the contract since 1997 but in April the North American Numbering Council (NANC), a federal advisory committee, recommended that Telcordia's Iconectiv unit win the contract.

The report said a sales process of Neustar may not start until the LNPA contract has been finalized, the people said. A few private equity firms have already expressed interest in a leveraged buyout of Neustar, which has a market value of $1.8 billion. Importantly, the firms would consider a deal even if Neustar lost the LNPA contract, the report said.  Neustar may ultimately decide against a sale, the report added.

A Neustar spokeman declined to comment, and JP Morgan also declined to comment, according to Reuters.

Neustar has been protesting the NANC recommendation for months, arguing that Ericsson is not a neutral party since it has contracts with many U.S. telcos, including the major wireless carriers. Ericsson and Telcordia dispute that. Neustar has also argued that the NANC's recommendation was made with little to no evidence and analysis. The LNPA contract accounted for 60 percent, 50 percent and 49 percent of Neustar's revenue in 2011, 2012 and 2013, respectively, according to the company's annual filing at the Securities and Exchange Commission.

In a new filing with the FCC, Neustar again reiterated its objections to the NANC recommendation, and said that the FCC cannot adopt the NANC's recommendation or alter its neutrality requirements without modifying its existing rules through a new rulemaking process. Neustar wrote that "the recommendation does not demonstrate that Ericsson's proposal was equivalent, much less superior, to Neustar's with respect to technical and management criteria, despite the priority that these criteria were to be given over price."

If Neustar ultimately lost the contract, going private could let it restructure without having to be concerned about its share price, which has fallen more than 40 percent this year, Reuters noted.

Neustar CFO Paul Lalljie said at an investor conference he did not know when the LNPA contract would be finalized. "We definitely don't have to go anywhere for capital. Even with or without this business, we are cash flow positive," he said.

Interestingly, in a strange twist, Neustar was created by private equity firm Warburg Pincus in 1999 and went public in 2005. Then Warburg, together with Providence Equity Partners, sold Telcordia to Ericsson in 2012.

For more:
- see this Reuters article
- see this FCC filing (PDF)

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