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Why Carl Icahn invested in Cloudera

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Carl Icahn speaking at Delivering Alpha in New York on Sept. 13, 2016.

David A. Grogan | CNBC

The latest target of Carl Icahn, an investor famous for his activist-takeover campaigns, is Cloudera, a troubled enterprise-software company that recently combined with its biggest rival.

Icahn has taken aim at a company that’s not nearly as richly valued as other technology names. Cloudera’s market cap is less than $2 billion, and it had a price-to-sales multiple of 2.6 for its current fiscal year, according to Refinitiv, while comparable small-cap enterprise software companies MongoDB and Twilio boast multiples of 16.4 and 14.5 respectively.

Cloudera is available at a discount for a few reasons: The person who took it public has left, and big cloud companies like Amazon are picking up business on Cloudera’s turf.

Cloudera shares rose after Icahn’s position in Cloudera became public on Aug. 1. “The Reporting Persons acquired their positions in the Shares in the belief that the Shares were undervalued,” Icahn and Co. wrote in the regulatory filing revealing the ownership stake.

On Monday the company said that as a result of an agreement with Icahn, two employees of Icahn Enterprises, Nicholas Graziano and Jesse Lynn, will join Cloudera’s board. Icahn and his affiliates now own more than 18% of the company, whose market cap is below $2 billion.

Cloudera declined comment. Icahn could not immediately be reached for comment.

Nothing to break up

Founded in 2008, Cloudera sells software that companies use to store and process great quantities of different kinds of data, sometimes referred to as “big data.” It’s best known for popularizing the Hadoop open-source big data software, which was inspired by technology used at Google and put into widespread use by Yahoo. The company went public in 2017 with considerable backing from Intel.

For years, Cloudera competed with other companies selling distributions of Hadoop, including Hortonworks. Then Cloudera and Hortonworks merged in a deal that was originally valued at more than $5 billion. The two companies’ stocks didn’t react well to the news, though. As they worked on integrating, Cloudera saw public cloud vendors pick up some of its sales opportunities, said then-CEO Tom Reilly on an earnings call in June. (Reilly has since left, and Chairman Martin Cole is now the company’s interim CEO.)

Analysts have varying opinions on what Icahn is likely to do.

“Cloudera is a pure-play single platform company and there’s nothing to breakup, so we’d imagine that the compatible areas of Mr. Icahn’s historical playbook would be restricted to 1) agitating for a sale, or 2) pushing for big expense reductions to boost cashflows,” BTIG analysts led by Edward Parker wrote in a note distributed to clients after the Cloudera stake was disclosed.

“The prospect for the latter’s success is complicated by the fact that the stickiness of Cloudera’s current revenue stream is currently subject to a high degree of skepticism. Indeed, Cloudera’s future largely hinges on the success of the upcoming CDP [Cloudera Data Platform] release, which pivots the company’s big data management platform from on-prem towards hybrid and multi-cloud environments.”

Rishi Jaluria, senior research analyst at DA Davidson, believes the company is undervalued.

“While the involvement of Mr. Icahn is a surprise, the involvement of an activist is not – we do believe shares are currently undervalued and the company could benefit from an activist,” he wrote in an Aug. 2 note. With Icahn in the mix, he could contribute to the selection of a replacement for Reilly, or agitate to sell the company to IBM or a private equity buyer.

The consolidation in the industry underscores the difficulty of building strong sustainable businesses selling open-source software. Earlier this month Hewlett Packard Enterprise said it acquired the “business assets” of a smaller Hadoop player, MapR. HPE didn’t disclose terms of the deal.

Icahn is no stranger to technology investing. After investing in Lyft in 2015, he exited the position earlier this year, prior to the company’s initial public offering. Last year he exited a position in PayPal, acquired a stake in VMware and bought into the tracking stock for Dell as the company was plotting its return to public markets. Icahn has also backed Apple and Netflix.

WATCH: BTIG’s Fishbein on cloud companies targeted for takeover

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US-UK trade deal within a year of Brexit will be tight, UK PM Johnson

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It will be tight to meet the United States’ desire to do a post-Brexit trade deal with Britain within a year, British Prime Minister Boris Johnson said on Sunday.

Johnson, who took office last month, had his first bilateral meeting with U.S. President Donald Trump earlier on Sunday at the G7 meeting in France and the two discussed a range of issues including trade.

In interviews with British television media afterwards, Johnson said the United States wanted to do a deal within a year of Britain leaving the EU on Oct. 31.

“Years and years is an exaggeration, but to do it all within a year is going to be tight,” he told BBC TV.

Johnson also said the chances of Britain agreeing a Brexit deal with the EU were improving but it would be “touch and go”.

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Hong Kong police briefly turn water cannon on protesters, fire tear gas

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Protesters gather in Kwai Fong in Hong Kong on August 24, 2019.

LILLIAN SUWANRUMPHA | AFP | Getty Images

Hong Kong police briefly fired water cannon and volleys of tear gas to force back brick-throwing protesters on Sunday after violent clashes a day earlier during which police also fired tear gas for the first time in more than a week.

At least one petrol bomb was thrown by protesters. The water cannon, which had not been used in years of anti-government protests, soon pulled away.

The Chinese-ruled city’s MTR rail operator suspended some services to try to prevent people gathering but protesters made it to a sports stadium in the vast container port of Kwai Chung, from where they marched to nearby Tsuen Wan.

Some dug up bricks from the pavement and wheeled them away to use as ammunition, others sprayed detergent on the road to make it slippery for the lines of police. Clashes spread in many directions.

Police had warned earlier they would launch a “dispersal operation” and told people to leave.

“Some radical protesters have removed railings … and set up barricades with water-filled barriers, bamboo sticks, traffic cones and other objects,” they said in a statement.

“Such acts neglect the safety of citizens and road users, paralysing traffic in the vicinity,” the statement said.

Activists threw petrol bombs and bricks on Saturday in the gritty industrial district of Kwun Tong, on the east of the Kowloon peninsula.

The vast majority marched peacefully on Sunday.

‘Last Chance’

M. Sung, a 53-year-old software engineer in a black mask emblematic of the many older, middle-class citizens at the march, said he had been at almost every protest and would keep coming.

“We know this is the last chance to fight for ‘one country, two systems’, otherwise the Chinese Communist Party will penetrate our home city and control everything,” he said.

“If we keep a strong mind, we can sustain this movement for justice and democracy. It won’t die,” Sung said.

Protesters say they are fighting the erosion of the “one country, two systems” arrangement under which the former British colony returned to China in 1997 with the promise of continued freedoms not enjoyed on the mainland.

The protests, which started over a now-suspended extradition bill and evolved into demands for greater democracy, have rocked Hong Kong for three months and plunged the city into its biggest political crisis since the handover.

They also pose a direct challenge for Communist Party leaders in Beijing, who are eager to quell the unrest ahead of the 70th anniversary of the founding of the People’s Republic of China on Oct. 1.

Beijing has sent a clear warning that forceful intervention is possible, with paramilitary forces holding drills just over the border.

Transport to the airport appeared normal on Sunday, despite protesters’ plans for a day-long “stress test” of transport in the international aviation and financial hub.

Police said they strongly condemned protesters “breaching public peace” and that 19 men and 10 women had been arrested after Saturday’s violence. More than 700 have been arrested since the demonstrations began in June.

The neighbouring gambling territory of Macau, a former Portuguese colony that returned to Chinese rule in 1999, elected former legislature head Ho Iat Seng as its leader on Sunday – the sole approved candidate.

Ho, who has deep ties to China, is expected to cement Beijing’s control over the “special administrative region”, the same status given to Hong Kong, and distance it from the unrest there.

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At G-7, Trump says he is not happy about North Korea missile tests

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SAINT-JEAN-DE-LUZ, France — President Donald Trump said Sunday he was not happy after North Korea launched short-range ballistic missiles over the weekend.

“I’m not happy about it but again he’s not in violation of any agreement,” Trump said when asked about the recent string of tests from the North’s Kim Jong Un.

“I discussed long-range ballistic and that he cannot do and he hasn’t been doing it and he hasn’t been doing nuclear testing. He has done short-range, much more standard missiles, a lot of people are testing those missiles, not just him. We are in the world of missiles folks, whether you like it or not,” Trump said.

Meanwhile, Japanese Prime Minister Shinzo Abe said North Korea’s test was in violation of UN Security Council resolutions.

On Saturday, North Korea fired what appeared to be two short-range ballistic missiles into the sea off its east coast, the South Korean military said, the latest in a series of launches in recent weeks amid stalled denuclearization talks.

North Korea, the only nation to have tested nuclear weapons this century, spent most of Trump’s first year in office perfecting its nuclear arsenal. The newest member of the world’s exclusive nuclear weapons club has stopped testing of its nukes for now as the U.S. and international community offer the possibility of relief from crippling economic sanctions.

Under the third-generation North Korean leader, the reclusive state has conducted its most powerful nuclear test, launched its first-ever intercontinental ballistic missile and threatened to send missiles into the waters near the U.S. territory of Guam.

Since 2011, Kim has fired more than 90 missiles and had four nuclear weapons tests, which is more than what his father, Kim Jong Il, and grandfather, Kim Il Sung, launched over a period of 27 years.

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