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What happened
You do not see that every day on Wall Street. This morning, star "machine learning" Cloudera (NYSE: CLDR) announced its merger with the data management company Hortonworks (NASDAQ: HDP) in "a peer-to-peer merger." In fact, the merger is a little more structured like an acquisition of Hortonworks by Cloudera, however, and 9 times out of 10, such deals lead to a decline in the shares of the acquirer, while shares in the company are sold. acquired business increase.
This is not happening today. Instead, both stocks are up – Cloudera up 9.9% at 12:15. HAE and Hortonworks up 10.1%.
Cloud computing has just created a new connection. Source of the image: Getty Images.
So what
The reaction of analysts to the event could be one of the reasons why investors consider this information to be positive for both companies. In the latest report, at least two different analysts had reviewed the Cloudera action in the news, four others had raised their price targets and two others, who already liked Cloudera, reiterated their positive ratings. (By the way, there is a reason why Wall Street is focusing on only one part of this merger.) If this transaction is accepted, all Hortonworks shares will disappear, they will be replaced by Cloudera shares at a ratio of 1.3: 1.)
Now what
It is conceivable that companies expect in a few years that this merger will help transform the two companies, whose cash flow from operations generated negative operating cash flow, into profitable producers. Management anticipates that a combination of Cloudera and Hortonworks could generate positive operating cash flow of $ 150 million within two years, with at least one analyst forecasting actual results. free cash flow north of $ 200 million.
Negative cash flow at $ 150 million or more in less than two years, that is? No wonder investors are excited.
Rich Smith has no position in any of the actions mentioned. The Motley Fool has no position in the mentioned actions. Motley Fool has a disclosure policy.
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