Will NCR’s Teradata Make it to the Public Markets?

By William Trent, CFA of Stock Market Beat

NCR recently announced plans to spin out its Teradata data warehousing business. Already some are speculating it will be taken over – possibly before it even hits the public markets

The deal should take six to nine months to complete. However, according to a report from The Daily Deal [a paid service], Teradata may not even hit the public markets. That is, it could be bought-out.By private equity firms? Well, given Teradata’s cash flows – and long-term contracts – it would be attractive to a financial buyer. But, the company would also make a great fit for major tech companies, such as Oracle (ORCL), IBM (IBM) and even Hewlett-Packard (HPQ). All of these companies have been quite acquisitive.

In all likelihood, NCR considered the potential of a sale before announcing the spin-out. However, any sale would likely result in capital gains (and therefore taxes) while a spin-off could be tax free to shareholders. Furthermore, if the spin-out is achieved buyers would have to wait two years to get their hands on it, or the taxes would be due retroactively. So we are betting against a deal, though it is a possibility.

Furthermore, we would scratch HP from the potential acquiror list. As noted in a recent InformationWeek Article (Inside HP’s Data Warehousing Gamble, January 8, 2007), HP CEO Mark Hurd ran NCR (and the Teradata division) and CIO Randy Mott installed Teradata systems at both Wal-Mart (WMT) and Dell (DELL).  Yet despite their extensive experience they chose to develop an in-house data warehousing system, Neoview. The InformationWeek article notes:

Mott says HP considered Teradata for its [internal] data warehouse, as well as a “go to market partnership” with the company.

But HP engineers had been developing data warehousing capabilities… and Mott needed to give that project a look and determine quickly if HP’s in-house technology was ready for wide use. For four months in late 2005, his team ran test loads in the lab. The [HP] system worked to Mott’s satisfaction.

So while there may indeed be a buyout in Teradyne’s future, we are betting it occurs in three years or so, and doesn’t involve Hewlett Packard.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; FedEx (FDX) put options; Intuit (INTU) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Ceradyne (CRDN) put options; Dell (DELL) put options; Plantronics (PLT) put options

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