Is Green Dot Corporation (GDOT) Cheap Based on the NetSpend Holdings Inc (NTSP) Buyout?

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After last writing about Green Dot Corporation (NYSE:GDOT) as a potential winning stock based on the new mobile banking platform, the stock has crept higher. The leading independent prepaid card provider for the underbanked got a boost on Tuesday after TeleCommunication Systems, Inc. (NASDAQ:TSYS) agreed to buy NetSpend Holdings Inc (NASDAQ:NTSP) for $1.4 billion.

Considering Green Dot is the leader in the sector though only worth $540 million, investors should consider whether that stock offers a better value. Based on the buyout news of a competitor at a large premium the stock should’ve gained more than 2.5% on the day.

Green Dot Corporation (NYSE:GDOT)

Buyout Details

TSYS is a leading global payment solutions provider, making the purchase of a provider of general purpose reloadable (GPR) prepaid debit cards a natural fit. The agreement calls for TSYS to acquire NetSpend in an all-cash transaction valued at approximately $1.4 billion. NetSpend shareholders will receive $16 in cash for each share of common stock.

The deal is expected to be accretive to GAAP EPS for the first 12 months after closing the deal, which is expected to occur in mid-2013.

The deal is roughly 30% above the previous closing price for NetSpend. Ironically the stock dropped over 3% in trading on Tuesday, suggesting the market wasn’t tipped off of a pending deal, though the stock had recently rallied to 52-week highs.

Oddly the deal only values the stock back around the initial gains in the weeks after the IPO. Any investors buying on the initial pop in late 2010 would see limited gains. On the flip side, investors buying in during the 2011 plunge had substantial gains with months to buy the stock below $6.

Why NetSpend?

One of the biggest questions will be why the company paid up for NetSpend compared to Green Dot. The latter has a larger revenue base and some interesting mobile technology, but a substantially lower valuation.

NetSpend provides more than 62,000 merchant locations to distribute the prepaid debit cards and a customer base of more than 2.4 million accounts. With over 46% of the accounts using direct deposit, the company has a solid recurring base.

According to TSYS, the rational for the purchase is that this sector is expected to grow at a 20% annual rate over the next four years. Not to mention, the deal is expected to be accretive in the first year.

Why not Green Dot?

Very possibly Green Dot wasn’t for sale after a horrible 2012 that saw the stock plunge to all-time lows. The stock dropped all the way from $65 back in late 2010 to trading below $15 prior to this announced deal.

As mentioned in the previous article, the biggest issue with Green Dot was the reliance on the Wal-Mart Stores, Inc. (NYSE:WMT) deal that came into question as the massive retailer introduced new competition via the Bluebird card from American Express Company (NYSE:AXP).

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