Analysis: EMC or NetApp Will Pay Way Too Much for Data Domain

 
 
By Chris Preimesberger  |  Posted 2009-07-07 Email Print this article Print
 
 
 
 
 
 
 

UPDATED: Industry analysts who read/research/blog/report on these things tell eWEEK they are generally in agreement: The corporate battle between NetApp, the original mover in the Data Domain sweepstakes, and outsider EMC has gotten way, way out of hand. Whichever company eventually makes the purchase will be paying far too much for what amounts to one point product.

Is EMC allowing its considerable corporate ego to gain control in a non-solicited campaign to acquire Data Domain? And why does it want to add a feature-deduplication-that it already has in spades in its voluminous catalog?

Industry analysts who read/research/blog/report on these things tell eWEEK they are generally in agreement: The corporate battle between NetApp, the original mover in the Data Domain sweepstakes, and outsider EMC has gotten way, way out of hand. Whichever company eventually makes the purchase will be paying far too much for what amounts to one point product.

However, most people agree that Data Domain has an excellent brand of deduplication-dedupe, as it is commonly called. Now both competitors want that golden software inside their walls to sell to the midsize- and small-business market, which has a considerable upside.

Data deduplication eliminates redundant data from a disk storage device in order to lower storage space requirements, which in turn lowers data center power and cooling costs and lessens the amount of carbon dioxide produced to generate power to run the hardware.

EMC already has a few brands of deduplication at its disposal: Avamar, which it acquired in 2006 for $165 million, and Quantum, with which it has a licensing agreement. Both are highly respected brands. The prevailing thought is that EMC covets Data Domain's brand and also doesn't want NetApp to own it. Some analysts believe that EMC eventually may have to make some hard decisions on exactly how many versions of dedupe it really needs. Nothing yet has been said on the record about that, however.

Data Domain shareholders are in a rather cozy situation. Let's see, which offer might they accept-$1.9 billion cash and stocks from NetApp, or the latest counter-offer: $2.1 billion cash (an 11 percent premium) on July 6 from big, bad EMC?

Two hundred million dollars more to fill shareholders' bank accounts carries a bit of weight in anybody's business.

NetApp and Data Domain employees and board members, mostly Californians, have gone on record to say that they prefer each other as colleagues, largely because the stiffer culture of Boston-based EMC would not be quite as pleasant a workplace experience. It is also generally agreed that the product lines of NetApp and Data Domain dovetail better than Data Domain's with EMC.

Meanwhile, Data Domain shareholders are getting giddy about their investment. The stock was selling at $12.62 on April 7, 2009; it closed today at almost three times that at $34.

After the news of EMC's second offer broke July 6, NetApp CEO Dan Warmenhoven didn't have a comment other than to say that he and company board members are reviewing their options at this time.

EMC President, CEO and Chairman Joe Tucci told Data Domain Chairman Aneel Bhusri via a letter dated July 6 that not only is EMC willing to increase its offer by about $200 million, but that it also can close the deal within two weeks-far earlier than NetApp can-and remove any deal protection provisions that could slow the process. The Federal Trade Commission already has blessed the EMC proposal as being acceptable as far as antitrust issues are concerned.

Is Data Domain Being Overvalued?

Analysts contacted by eWEEK were in accord on the most important aspects of the deal:  Either EMC or NetApp will pay far too much for Data Domain; NetApp and Data Domain are a better corporate fit; and NetApp would benefit far more from incorporating Data Domain than EMC would.

"I think NetApp's goose is almost cooked," storage analyst Dave Vellante of Wikibon told eWEEK. "It's pretty clear EMC is paranoid about NetApp getting Data Domain, so it will outbid NetApp perpetually, it seems-unless this is the ultimate poker hand to drive the price higher and then walk, which I don't think is EMC's intent."

Vellante said he's been thinking through possible "white-knight scenarios for NetApp, but I don't see it. NetApp's only hope, in my opinion, is to match EMC's offer and hope EMC bails [out of the deal] because the price it too high. I don't expect that to happen, but you never know what [Joe] Tucci's really thinking.

"All of this is insanity, in my view. Spending $2 billion-plus for a point product company with $300 million in revenue in a market that is perhaps $5 billion to $6 billion doesn't make sense, in my opinion."

Vellante said he'd rather see EMC invest in the information management space (e-mail archiving, e-discovery, records retention and others). "That's a high-value growth market with $10 billion-plus [market] potential and no clear winners. EMC currently has a subpar product offering with an outdated go-to-market strategy," he said.




 
 
 
 
Chris Preimesberger Chris Preimesberger was named Editor-in-Chief of Features & Analysis at eWEEK in November 2011. Previously he served eWEEK as Senior Writer, covering a range of IT sectors that include data center systems, cloud computing, storage, virtualization, green IT, e-discovery and IT governance. His blog, Storage Station, is considered a go-to information source. Chris won a national Folio Award for magazine writing in November 2011 for a cover story on Salesforce.com and CEO-founder Marc Benioff, and he has served as a judge for the SIIA Codie Awards since 2005. In previous IT journalism, Chris was a founding editor of both IT Manager's Journal and DevX.com and was managing editor of Software Development magazine. His diverse resume also includes: sportswriter for the Los Angeles Daily News, covering NCAA and NBA basketball, television critic for the Palo Alto Times Tribune, and Sports Information Director at Stanford University. He has served as a correspondent for The Associated Press, covering Stanford and NCAA tournament basketball, since 1983. He has covered a number of major events, including the 1984 Democratic National Convention, a Presidential press conference at the White House in 1993, the Emmy Awards (three times), two Rose Bowls, the Fiesta Bowl, several NCAA men's and women's basketball tournaments, a Formula One Grand Prix auto race, a heavyweight boxing championship bout (Ali vs. Spinks, 1978), and the 1985 Super Bowl. A 1975 graduate of Pepperdine University in Malibu, Calif., Chris has won more than a dozen regional and national awards for his work. He and his wife, Rebecca, have four children and reside in Redwood City, Calif.Follow on Twitter: editingwhiz
 
 
 
 
 
 
 

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