What Happens to Cloudera Stock After the Buyout?

Cloudera stock opened sharply higher on June 1 after KKR and Clayton, Dubilier & Rice agreed to acquire the company at $16 per share, which is a premium of 24 percent over the closing prices on May 28. What happens to Cloudera stock after the buyout?

Cloudera is valued at $5.3 billion in the all-cash transaction. The company’s shareholders would receive $16 in cash for every Cloudera share that they hold. However, the transaction is subject to shareholder approval. That shouldn't be a problem since activist investor Carl Icahn, who holds an 18 percent stake in the company, supports the transaction.

In a buyout, the company that's being acquired ceases to exist as a publicly-traded company. After the Cloudera acquisition is completed, KKR and Clayton, Dubilier & Rice would take the company private. There's a possibility that in the future the private equity companies might again look at taking Cloudera public. There have been multiple such instances where private equity companies have again taken the company public.

As for Cloudera stock, before the buyout is completed, it will trade near the $16 price level. In all likelihood, the stock should trade at a slight discount to the buyout price before shareholders approve the merger.

Over time, Carl Icahn has built his reputation as an activist investor. He was instrumental in getting Freeport-McMoRan to sell some of its copper assets and repay its debt. In 2015, Freeport-McMoRan, the largest publicly traded copper miner, was reeling under the impact of low copper prices. The issues were amplified by its over $20 billion debt load.

Asset sales, which were done at reasonable valuations, helped restore the sentiments. The stock is up sharply in 2021 and copper prices are near their all-time highs amid strong demand growth.

Coming back to Cloudera, it hasn’t added much shareholder wealth. The company priced its IPO at $15 per share in 2017. Before the buyout offer, it was trading below the IPO price. Even the buyout price is only $1 above the IPO price.

Intel paid $30.94 per share for Cloudera in 2014 and the IPO was eventually priced at less than half of what Intel paid. Cloudera has been plagued by weak financials and tepid growth. However, the financials have been improving.

In the fiscal year ended January 31, 2021, the company’s revenues increased 9 percent, while its operating profits increased to 17 percent. Its fiscal first-quarter revenues also increased 7 percent YoY. However, markets don’t seem too impressed with the performance and the stock is down 8 percent until the end of May, while the S&P 500 is up sharply during this period and trading near all-time highs.

Before the buyout, Cloudera had a median target price of $16, which is the buyout price also. Among the 11 analysts covering the stock, four recommend a buy or some equivalent, while seven recommend a hold.

Cloudera has been facing tough competition from big cloud companies like Amazon. The company’s cloud business is the most profitable vertical. Alibaba’s cloud operations have also turned positive on the adjusted EBITDA level and could see its earnings improve more as cloud adoption continues to grow.