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Strategies & Market Trends : Speculating in Takeover Targets
ULBI 8.830-0.9%3:59 PM EDT

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To: richardred who wrote (2420)9/26/2010 8:57:41 PM
From: richardred  Read Replies (2) of 6990
Appreciating Teradata's Many Charms

NEARLY A YEAR AGO, WE NOTED that among the considerable appeals of Teradata, the leader in business intelligence and data analytics, was its attractiveness as a takeover target.

Not only has Teradata's (ticker: TDC) performance this past year surpassed expectations, but sure enough, in the last week, Teradata's takeover appeal received wider recognition. One of its competitors, International Business Machines, made a $1.7 billion, or $27-a-share, cash bid for another smaller but faster-growing rival, Netezza. Netezza adds to IBM's analytics offering and makes it a more formidable competitor to Oracle's Exdata data-warehousing service.

Data analytics is a focus on the mergers front as more mature technology companies turn to this field for its dynamic growth characteristics. IBM's bid for Netezza, for instance, came on the heels of a bidding war between Hewlett-Packard and Dell for data-storage company 3Par, which HP eventually won.
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Teradata's shares spiked from a close of $34.47 on Friday, Sept. 17 to a recent $38.57 on takeover speculation and are up nearly 33% from when we recommended the stock ("Sounds Like a Dinosaur, But It's No Small-Brainer," Oct. 26, 2009). Its market value is now $6 billion, about $1 billion higher than when it caught our attention. It's in solid financial shape, with zero debt and about $4 a share in cash.

"If a larger company wants to put excess cash to work and dominate the business-analytic space in one decision, they will look at TDC," says James Tarkenton, portfolio manager at Lateef Investment Management of Greenbrae, Calif. "TDC remains the only provider in the space with product across all price points." Its superior performance is highlighted by its ability to lure high-profile companies such as Home Depot and JPMorgan away from the competition in the past year.

Tarkenton puts an intrinsic value of $50 a share on Teradata. But the firm would fetch more in a takeover. HP was once considered a front-runner to acquire Teradata because its former chief executive, Mark Hurd, ran the company when it was a unit of NCR.

Now that Hurd has been named co-president of Oracle, Teradata's biggest competitor, there is speculation Oracle might be interested in Teradata for its faster and more comprehensive solutions. Then, too, the company could provide an avenue for Microsoft to get into the hot area of analytics. Teradata would benefit from the broader sales networks at bigger companies.

The beauty of owning Teradata shares is that they will appreciate nicely with or without a takeover.

—Sandra Ward
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