Teradata prepares for low-impact flotation

Towards the end of a gruelling schedule of events at its Teradata Universe conference, CEO Mike Koehler found himself facing a room full of journalists looking for a story.

The enterprise data warehousing company had already announced back in January 2007 that it would spin out from its parent company NCR later in the year. The full details of that float were not ready to be released, so Koehler re-presented some solid financial numbers and seemed happy.

“But how will things change?” asked one attended journalist. “Are you going to make any acquisitions?” asked another. “Do you think you will be taken over?”

Koehler, the 54 year-old veteran who first joined NCR in 1975, provided no dramatic answers. “We pretty much do what we say we are going to do. I would like to continue with that,” he said, adding: “You can sell vision but you get paid on performance”.

In June, NCR/Teradata filed full details of the proposed flotation with the US Securities and Exchange Commission, but there were few clues about its strategy. In operational terms, the plan is clearly “more of the same”.

Although not likely to grab any headlines, that is not such a bad plan. Teradata has posted five years of solid growth and good profits – just the kind of record financial analysts like, and there are similar projections going forward. With 2006 sales of $1.6 billion, and net profits of $198 million, a valuation of around $5 billion seems likely (about half of NCR’s total value).

The actual process of the float is unusual. Sometime during the third financial quarter (September seems likely), NCR shareholders will receive Teradata shares for each NCR share they hold, and after that, they will trade separately. To qualify for large tax concessions, the two companies must be run entirely separately – so Teradata must move out of NCR’s offices around the world, incurring considerable start-up costs.

At that point, a new, independent top 10 software company will be born. From day one, it will be the market leader in a sector that is enjoying an extraordinary period of innovation and expansion. The data warehousing market is teeming with new entrants – companies such as appliance makers Datallegro, Dataupia, Netezza, and software innovators such as Greenplum, are lining up against Oracle, IBM and, at the high end, Teradata. Hewlett-Packard, after years on the sidelines, has just entered the market with its Neoview product.

So what happens next? Data consolidation and analytics is booming across the world, as every type of large business seeks to lever insights and patterns out of their huge and growing databases. Koehler, noting that RFID, GPS and text data is now being collected and analysed alongside traditional transaction information, sees no slow down ahead.  A recent push into providing more real-time analytics – Active Enterprise Intelligence in Teradata parlance – can only drive demand for high-performance databases and appliances even higher.

Koehler acknowledges that he needs to watch out for new competitors, but he thinks that most operate at the low end, with specialist appliances aimed at smaller or simpler jobs. Teradata focuses on big, enterprise-class deals, and sees its main competitors as Oracle and IBM, formidable but long-standing foes.

But how long will Teradata remain independent after its flotation? IBM, Oracle and HP all have the resources and good strategic reasons for buying the newly-liberated company. While this remains possible, the spin off includes a poison pill of sorts: any buyers will have to pay back hundreds of millions in tax breaks if they buy the company within 24 months. But even that potential hurdle may not be sufficient to deter both speculators and strategic buyers.

Meanwhile, Teradata will begin its new life with $200 million in cash and $300 million in borrowings – so the company could end up buying some smaller rivals itself. But there is no hurry. “We are always looking at new opportunities, but we have always been fairly successful at growing out business without mergers and acquisitions,” says Koehler.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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