Not surprisingly, Data Domain management today recommended its shareholders reject EMC’s offer to buy the deduplication vendor “at this time” in favor of an offer from NetApp.
The reason it’s not surprising is that EMC’s June 1 cash bid of $30 per Data Domain share was unsolicited, and came more than a week after Data Domain’s board already accepted NetApp’s offer to acquire the company. NetApp has since increased its offer from $25 per share to $30 per share in a combination of stock and cash, which Data Domain’s board again accepted. NetApp’s offer is placed at $1.9 billion compared to EMC’s $1.8 billion, but EMC maintains its offer is better because it is all cash.
Data Domain shareholders can still vote to accept the deal without the approval of Data Domain’s board. However, there have already been rumblings that EMC will raise its offer, perhaps to $34 or $35 per share. Data Domain’s stock price opened today at $33.50, indicating its investors expect a higher offer.
“Our Board is committed to enhancing stockholder value and, after careful review with our outside advisors, determined that the $30 per share EMC Offer is not in the best interests of our stockholders at this time,” Data Domain CEO Frank Slootman said in a press release today. “We are pleased with the revised terms of NetApp’s acquisition offer and feel it will provide great value to our shareholders and customers.”
EMC CEO Joe Tucci also issued a statement today, repeating his claim that EMC’s offer is superior to NetApp’s. “EMC’s all-cash offer meets all of Data Domain’s stated objectives,” Tucci said. “We do not believe that Data Domain stockholders will approve the proposed transaction with NetApp. EMC remains committed to successfully completing this transaction. ”
The release said Data Domain’s board recommended saying no to EMC for several reasons. They include:
• accepting the deal would allow NetApp to terminate its agreement;
• Data Domain has not been able to negotiate terms of EMC’s offer because EMC hasn’t agreed to enter into a confidentiality agreement required by the Data Domain-NetApp deal;
• possible issues with the Hart-Scott-Rodino Antitrust act involved with an EMC-Data Domain deal; and
• Data Domain would have to pay NetApp a $57 million fee if it terminates its agreement.
SEC filings previously released noted that NetApp offered Data Domain chairman Aneel Bhusri a place on its board and Slootman a management position. EMC has made no such offers, but has indicated it wants to keep Data Domain management in place.
EMC may have no choice but to increase its offer. By making its $1.8 billion bid public and going on the record with its praise of Data Domain’s deduplication devices, it could find it difficult to sell its own competing products based on deduplication software from Quantum.