You don't see this every day on Wall Street. This morning, "machine learning" star Cloudera (NYSE:CLDR) announced it is merging with data management company Hortonworks (NASDAQ:HDP) in "an all-stock merger of equals." In fact, the merger is being structured a bit more like an acquisition of Hortonworks by Cloudera, though, and 9 times out of 10, such deals cause the acquirer's stock to go down while the acquiree's stock goes up.
That's not happening today. Instead, both stocks are rising -- Cloudera up 9.9% as of 12:15 p.m. EDT and Hortonworks up 10.1%.
Analyst reaction to the event might be one reason investors are looking on this news as a positive for both companies. At last report, at least two different analysts had upgraded Cloudera stock on the news, four more had raised their price targets on the stock, and a couple more -- who already liked Cloudera -- were reiterating their positive ratings. (By the way, there's a reason Wall Street is focusing on only one party to this merger. Assuming it goes through, all Hortonworks shares will disappear, being replaced by Cloudera shares at a 1.3-to-1 ratio.)
Also helping sentiment, one imagines, are the companies' projections that a couple of years from now, this merger will help transform both companies from cash-burning operations with negative operating cash flow into robust cash profit producers. Management predicts that a combined Cloudera/Hortonworks could generate positive operating cash flow of $150 million two years hence, and at least one analyst is predicting actual free cash flow north of $200 million.
From negative cash flow to $150 million or more in less than two years flat? No wonder investors are excited.