Will NCR Corp.'s Teradata Be Bought Out Before It Can Go Public?

| About: NCR Corporation (NCR)

NCR Corp. (NYSE:NCR) recently announced plans to spin out its Teradata data warehousing business. Already some are speculating it will be taken over - possibly before it even hits the public markets.

The deal should take six to nine months to complete. However, according to a report from The Daily Deal [a paid service], Teradata may not even hit the public markets. That is, it could be bought-out.By private equity firms? Well, given Teradata’s cash flows – and long-term contracts – it would be attractive to a financial buyer. But, the company would also make a great fit for major tech companies, such as Oracle (NASDAQ:ORCL), IBM (NYSE:IBM) and even Hewlett-Packard (NYSE:HPQ). All of these companies have been quite acquisitive.

In all likelihood, NCR considered the potential of a sale before announcing the spin-out. However, any sale would likely result in capital gains (and therefore taxes) while a spin-off could be tax free to shareholders. Furthermore, if the spin-out is achieved buyers would have to wait two years to get their hands on it, or the taxes would be due retroactively. So we are betting against a deal, though it is a possibility.

Furthermore, we would scratch HP from the potential acquiror list. As noted in a recent InformationWeek Article (Inside HP’s Data Warehousing Gamble), HP CEO Mark Hurd ran NCR (and the Teradata division) and CIO Randy Mott installed Teradata systems at both Wal-Mart (NYSE:WMT) and Dell (NASDAQ:DELL). Yet despite their extensive experience they chose to develop an in-house data warehousing system, Neoview. The InformationWeek article notes:

Mott says HP considered Teradata for its [internal] data warehouse, as well as a “go to market partnership” with the company.

But HP engineers had been developing data warehousing capabilities… and Mott needed to give that project a look and determine quickly if HP’s in-house technology was ready for wide use. For four months in late 2005, his team ran test loads in the lab. The [HP] system worked to Mott’s satisfaction.

So while there may indeed be a buyout in Teradyne’s future, we are betting it occurs in three years or so, and doesn’t involve Hewlett Packard.