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Cloudera, Hortonworks to Merge & Create $5.2B Data Company

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Cloudera (CLDR - Free Report) and Hortonworks (HDP - Free Report) are set to merge to form the world’s leading data platform provider across multi-cloud, on-premise and the Edge. The combined company will be worth at least $5.2 billion (at closing prices on Oct 2). The transaction is expected to close in the first quarter of 2019.

Under the terms of the agreement, Cloudera and Hortonworks’ stockholders will own 60% and 40% of the combined company’s equity, respectively. For each share of Hortonworks, its stockholders will receive 1.305 common shares of Cloudera.

Tom Reilly, CEO of Cloudera, stated, “Our businesses are highly complementary and strategic. By bringing together Hortonworks’ investments in end-to-end data management with Cloudera’s investments in data warehousing and machine learning, we will deliver the industry’s first enterprise data cloud from the Edge to AI.”

Tom Reilly will serve as the CEO of the combined company while Hortonworks’ Scott Davidson will serve as COO. Hortonworks’ CEO, Rob Bearden, will join the board of directors of the combined company.

Following the merger news, shares of Cloudera and Hortonworks increased 1.07% and 1.77%, respectively, at close on Oct 3.

Rationale Behind the Merger

Both Cloudera and Hortonworks are providers of Hadoop open-source free software that helps in storing, searching and analyzing large amounts of data. While Hortonworks became public in November 2014, Cloudera listed itself in April 2017.

However, the companies have different approaches toward tackling the complexities of Hadoop. Per TechCrunch, which quoted IDC analyst Carl Olofson, Hortonworks’ open-source software primarily targets “big data technologists” while Cloudera’s offerings are aimed at solving various business problems. Cloudera’s primary customer base comprises business managers.

Nonetheless, both the companies have faced sluggish growth in recent times. Notably, on a year-to-date basis, both have underperformed the Zacks Internet Software industry.

 


 

In second-quarter fiscal 2019, Cloudera posted loss of 8 cents per share on revenues of $110 million. Although the top-line figure increased 22% year over year, it was much lower than 28.8% growth in the previous quarter and 41.1% in fourth-quarter fiscal 2018.

Hortonworks also reported loss of 52 cents per share on revenues of $86 million in second-quarter 2018. Top-line growth of 38.7% slowed down from 41.1% growth in the previous quarter and 44.2% in fourth-quarter 2017.

The combined company has better growth prospects in the big data solution provider market amid increasing competition from the likes of Amazon (AMZN - Free Report) Web Services, Microsoft (MSFT - Free Report) Azure and Google services.

The combined company is expected to have more than 2,500 customers. Moreover, it will generate roughly $720 million in revenues (for a 12-month period starting from second-quarter fiscal 2018 to second-quarter fiscal 2019). Further, the deal is expected to generate annual cost synergies worth $125 million.

The combined company will have $500 million in cash and no debt. Additionally, cash flow is likely to hit $150 million in 2020.

Zacks Rank

While Hortonworks currently carries a Zacks Rank #3 (Hold), Cloudera has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

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