For the past couple of years, NCR's (NYSE:NCR) management says it has run its Teradata division as a separate business. Now, the two will be split into two publicly traded companies. All in all, the move makes a lot of sense, as it should help improve the competitiveness of both. What's more, the Street likes the deal -- the stock price increased 3.3% to $43.79 on the announcement.
Back in 1991, AT&T (NYSE:T) purchased NCR for $7.4 billion, and then several months later bought Teradata for $520 million. It turned out to be a disastrous strategy for AT&T, which eventually divested NCR.
Basically, there was little synergy between NCR and Teradata.
NCR focuses on self-service technologies, such as ATMs, kiosks, and check-in systems. It's a business with revenues of $4.5 billion and operating income of $251 million in fiscal 2005.
Teradata, on the other hand, is a developer of data warehousing systems, which allows large companies to centralize information. This has become very important because of globalization, the explosion of data, and corporate compliance requirements (such as Sarbanes-Oxley).
True, the competition is tough, with players like Oracle (NASDAQ:ORCL) and IBM (NYSE:IBM). But Teradata has been able to build a strong business; in fiscal 2005, it posted $1.5 billion in revenues and operating income of $309 million.
Takeaway
As separate entities, NCR and Teradata will not have to fight for managerial attention or capital resources. Moreover, the incentive plans can be better aligned to the performance of each business.
And, as I've written before, there should be an improvement in profits in 2007 -- for both divisions -- because of recent restructurings.
However, it looks like the real gem is Teradata, which is poised for long-term growth. Interestingly enough, it may even be an attractive acquisition candidate. One possible suitor is Hewlett-Packard (NYSE:HPQ), which has been trying to improve its software business. In fact, the company's CEO, Mark Hurd, was the former chief of NCR and helped to build Teradata.
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Fool contributor Tom Taulli does not own shares of companies mentioned in this article. He is currently ranked 328 out of 17,523 in Motley Fool CAPS.
