Tuesday, September 21, 2010

IBM to buy Netezza for $1.7B in cash. Is a counterbid from HP in the cards?

IBM on Monday announced an agreement to buy Netezza for $1.7 billion in cash, in a deal which adds to recent deal-making momentum in business software and services. On September 10th, we reported Netezza as an attractive takeover target for HP following the company's dispute with Oracle over its ex-Chief Hurd. According to Wall-Street Journal today, after weeks of mudslinging, HP and Oracle agreed to settle a legal dispute over the hiring of Mark Hurd.

We still think that similar to 3Par acquisition, HP may get aggressive to quickly ramp up it's database stack in lieu of Oracle. Therefore, investors should watch out that a counter bid from HP might be in the cards. HP recently won victory over Dell in the battle to acquire storage technology company 3Par for $2.4 billion at about 90 times its projected earnings. 

There was no immediate sign of a rival to IBM’s bid, but Netezza’s share price climbed 13% to $27.80 on Monday, above IBM’s offer of $27 a share.According to the media sources, Netezza would have to pay IBM $56 million if it terminates the deal. 3Par paid Dell a $72 million break fee in order to accept HP’s final offer of $33 a share, which was more than three times the $9.65 3Par was trading at before Dell’s initial $18 bid.

We expect to see accelerating momentum in the M&A activity across the technology landscape with likely future investor interest in technology companies such as CommVault, Compellent, Isilon and NetApp.

IBM reported that the Netezza deal would help it expand its business information and analytics offerings. Netezza’s 500-strong workforce would supplement 6,000 IBM consultants in this area. IBM’s analytics business grew 14% year-on-year in the second quarter and it has spent $12 billion in 23 analytics-related acquisitions over the past four years. Sam Palmisano, IBM chief executive, said in May he was planning $20 billion in acquisitions over the next five years.

Netezza offers products that integrate databases, servers and storage into a single appliance that is easy to install and requires little administration. Its service competes directly with Oracle’s Exadata data warehousing appliance.  Following this deal provided that it will close of course, IBM would compete head-on to Oracle’s Exadata solution. As the technology market further consolidates, we expect IBM and HP to lead the pack followed by Oracle, Microsoft, Cisco and Dell.

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