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IBM In Deal To Acquire Netezza For $1.7 Billion

Buyout of BI appliance pioneer would put Big Blue on a more even footing with Oracle and Teradata, but don't rule out a bidding war.

IBM on Monday said it reached an agreement to acquire data warehousing specialist Netezza for $27 per share, or about $1.7 billion. Netezza shares immediately rose above $27 on the news—an indication some investors believe a 3Par-style bidding war for the company may be at hand.

IBM executives said the addition of Netezza would broaden their company's portfolio of offerings in the market for database and business intelligence platforms. "Netezza strongly complements our business analytics capabilities and client base. Together we have the opportunity to quickly leverage the technology and accelerate the offering," said senior VP Steve Mills, in a statement.

Netezza went public in 2007, and quickly made a name for itself by developing data warehouse appliances that combine hardware, software, and business intelligence tools in a single box. Its list of high-profile customers includes AOL Advertising, Blue Cross Blue Shield of Massachusetts, British Sky Broadcasting Group, and the Marriott hotel group. The company counts about 500 employees.

IBM officials said Netezza's one-stop shop approach to analytics and data warehousing makes its offerings appealing not just to large enterprises, but also to departments, branch offices, and smaller businesses.

"It's no longer just the CIO, every single department from finance to marketing professionals is tapping into the capabilities of analytics to draw meaningful insights," said Arvind Krishna, IBM's general manager for Information Management.

"The addition of Netezza will reinforce IBM's focus in understanding client's needs by providing them a broader set of analytics capabilities and bringing the power of analytics right into the hands of business users at every level within an organization," said Krishna. IBM pegs the overall market opportunity in business analytics at $100 billion and said its cut should reach about $16 billion by 2015.

Observers say adding Netezza would put IBM on a more competitive footing with other data warehouse players, like Oracle and Teradata. "With IBM acquiring NZ, it will be able to combine IBM's XIV storage, as well as its blade and networking hardware for a fully integrated appliance offering," said Wells Fargo analyst Jason Maynard, in a research note.

Netezza's simplified approach to data analytics has resulted in rapid growth over its short life. Last month the company reported a 45% year-over-year increase in second quarter revenue, to $63.8 million, while net income ballooned from $700,000 to $3.3 million over the period.

Only last week, IBM CEO Sam Palmisano touted his company's ability to spot hot technologies within early-stage vendors—and snap them up at low-ball prices. True to that, IBM's deal to buy Netezza for $27.00 represents a premium of just 9.8% over the company's closing stock price Friday.

By contrast, HP's final deal to buyout cloud storage specialist 3Par early this month for $2.35 billion following a bidding war with Dell represented a premium of 240% over 3Par's stock price before the auction erupted. Palmisano, in an interview last week with The Wall Street Journal, called out former HP CEO and now Oracle co-president Mark Hurd for overpaying for acquisitions.

"We bought an equivalent technology [to 3Par] for less than $200 million," said Palmisano, referring to the company's takeout of XIV in 2008. Palmisano said Hurd was forced into a series of pricey auctions for companies like ArcSight, which went to HP last week for $1.5 billion, and 3Par because he gutted R&D spending in Palo Alto.

But IBM's conservative offer for Netezza may leave room for a rival, such as Oracle or even HP, to swoop in with a counter offer before the deal is sealed. Oracle in particular may be tempted to add Netezza's offerings to its Exadata data warehouse platform.

Reflecting the possibility of a bidding war, shares of Netezza were trading higher than IBM's offer early Monday, up 12.52% to 27.68 in the early going on Wall Street. IBM shares were up .79%, to $131.22.

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