Why Hortonworks and Cloudera Are Striking Big Merger Deal

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Hortonworks Inc. (NASDAQ: HDP) and Cloudera, Inc. (NYSE: CLDR) shares made a strong gain on Thursday after the companies announced an all-stock merger of equals. By the looks of it, these companies will be better together than they ever were apart and investors appear to be cheering this move.

The transaction was unanimously approved by the boards of directors of both companies and is expected to close in the first quarter of 2019.

Under the terms of the agreement, Cloudera stockholders will own roughly 60% of the equity of the combined company and Hortonworks stockholders will own 40%. Hortonworks stockholders will receive 1.305 common shares of Cloudera for each share of Hortonworks stock owned. The companies have a combined fully diluted equity value of $5.2 billion based on closing prices on October 2.

The combined company is expected to generate $720 million in revenue, with more than 2,500 customers. The company is also expected to see more than $125 million in annual cost synergies. The combined company will have $500 million in cash with no debt as well.

These two companies have been rivals, but they have entertained the idea of a merger in this time as well. Each works with the Hadoop open-source big data software, which they use to store, process and analyze lots of different types of data.

Together they believe that they can generate more cash quicker than if they were independent companies.

The management of the combined company will be as follows:

Cloudera’s Chief Executive Officer, Tom Reilly, will serve as Chief Executive Officer; Hortonworks’ Chief Operating Officer, Scott Davidson, will serve as Chief Operating Officer; Hortonworks’ Chief Product Officer, Arun C. Murthy, will serve as Chief Product Officer; and Cloudera’s Chief Financial Officer, Jim Frankola, will serve as Chief Financial Officer, of the combined company. Hortonworks’ Chief Executive Officer, Rob Bearden, will join the board of directors. Current Cloudera board member, Marty Cole, will become Chairman of the board of directors.

The transaction is subject to stockholder approval on both sides, as well as other customary closing conditions.

Shares of Hortonworks was last seen up about 16% at 25.34, with a consensus analyst price target of $26.62 and a 52-week trading range of $15.50 to $26.22.

Cloudera shares were up 16% too, at $19.82. The consensus price target is $18.78, and the 52-week range is $12.57 to $22.42.

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