storage vendors; data deduplication

Data Domain tells EMC to take a hike (or make a better offer) *UPDATED*

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.

Data Domain accepts NetApp’s offer — again *UPDATED*

Data Domain accepted NetApp’s latest offer worth $1.9 billion today, while EMC claimed its bid is still superior to NetApp’s.

NetApp accelerated the bidding war over the data deduplication specialist this morning by increasing its original offer of cash and stock from $1.5 billion or $25 per share after EMC an unsolicited offer Monday for $30 per share.

Data Domain, which agreed to NetApp’s May 20 offer, again agreed to be acquired by NetApp – this time for $30 per share.

“We are pleased with the revised terms of NetApp’s acquisition offer and feel it will provide great value to our shareholders and customers,” Data Domain CEO Frank Slootman said in a prepared statement.

Around the same time that Slootman was accepting NetApp’s counter, EMC CEO Joe Tucci released a statement saying EMC’s all cash offer of around $1.8 billion is the better deal for Data Domain stockholders. The shareholders will ultimately decide which offer to accept.

“EMC’s all-cash tender offer remains superior to NetApp’s proposed part-stock merger transaction,” Tucci said. “We are proceeding with our superior cash tender offer, which is not subject to any financing or due diligence contingency. We do not believe that the Data Domain stockholders will approve the merger transaction with NetApp.”

NetApp’s offer is slightly higher because it is based partly on its stock price – which changes daily — while EMC’s offer is fixed.

The revised NetApp offer consists of $16.45 per share in cash and $13.55 per share in NetApp stock based on NetApp’s Tuesday closing price of $19.34. While Wall Street analysts say NetApp needs to make an all-case offer to get Data Domain, NetApp maintains the combination of cash and stock makes its offer superior to EMC’s because of the potential for greater long-term value.

Financial analysts who follow NetApp and EMC expected NetApp to counter, but they say NetApp lacks the available cash to win a sustained bidding war with EMC.

“Why would anybody take a cash and stock deal when somebody else is offering all cash?” says Kaushik Roy of Wedbush Morgan Securities. “Besides, I would guess EMC will up its offer by a little bit.”

Aaron Rakers of Stifel Nicolaus Equity Research also expects EMC to win out. “We ultimately believe that EMC’s cash position will allow them to make an increased offer above the current $30 per share offer in order to acquire Data Domain,” he wrote in a note to clients today.

Data Domain’s stock price closed at $32.54 today, suggesting investors expect an even higher offer.

EMC wants Data Domain for $1.8 billion

EMC today moved to outbid NetApp for Data Domain, offering $30 per share for the data depulication backup specialist – less than two weeks after NetApp offered $25 per share.

EMC’s offer is worth $1.8 billion, compared to NetApp’s $1.5 billion. Data Domain’s stock closed at $26.35 today.

In making the offer, EMC made it clear that it thinks the world of Data Domain, around a year after it struck an OEM deal with Quantum to compete with Data Domain in the target backup dedupe market.

“EMC has made this offer to acquire Data Domain for its fast-growing revenue base, its strong data protection-focused management team and sales force and its highly complementary storage software technology that will help to accelerate both companies’ ability to deliver industry-leading next-generation disk-based backup and archiving solutions for customers,” EMC said in its release announcing its offer.

EMC also made public a letter from CEO Joe Tucci to Data Domain CEO Frank Slootman, claiming EMC’s offer is better because it is a 20% premium to NetApp’s offer, an all-cash offer compared to NetApp’s cash and stock offer, and would close quicker because it is structured as a tender offer.

Tucci is also trying to tempt Slootman with the vendor’s size and scope, claiming EMC could use Data Domain to turn disk-based backup into a $1 billion business within a year. “We will maintain the senior management team under your leadership and operate Data Domain as a product division within EMC,” Tucci wrote to Slootman. “As a part of EMC, Data Domain will have access to EMC’s superior global resources and we will enhance this division with additional EMC technology, products and capital.”

Tucci also said in the letter, “We are disappointed that we were not given an opportunity to explore a business combination prior to the announcement of your proposed transaction with NetApp, particularly since I believe you should have been aware of our interest.”

Data Domain has approved NetApp’s offer although the deal isn’t expected to close until late summer. Data Domain declined comment on EMC’s offer and NetApp has not responded to a request for comment.