NetApp Drops out of Bidding for Data Domain

NetApp on July 8 said it is dropping out of the race to acquire Data Domain in light of EMC's most recent offer of $2.1 billion to buy the storage deduplication provider.

In an announcement released at the same time, Data Domain's board of directors agreed to accept EMC's offer to acquire all outstanding shares of the company's common stock for $33.50 per share in cash. EMC already has Federal Trade Commission approval of the deal, and it claims that it will be able to close the transaction within two weeks.

NetApp, however, comes away with a bonus in the aborted transaction. In announcing the termination of the June 3 merger agreement with NetApp, Data Domain said it has paid NetApp a $57 million termination fee under the terms of that agreement.

Data Domain also said it has canceled a special meeting of stockholders scheduled for Aug. 14 at which stockholders were to vote on the NetApp merger.

NetApp Chairman and CEO Dan Warmenhoven said in a statement to the press, "We cannot justify engaging in an increasingly expensive and dilutive bidding war that would diminish the deal's strategic and financial benefits."

NetApp's last offer was for $1.9 billion in cash and stocks. The boards of directors of both Data Domain and NetApp had agreed to that deal back on June 3.

Warmenhoven said the company will not revise its proposal to acquire Data Domain and has officially canceled its offer.

"While NetApp's acquisition of Data Domain would have produced benefits for customers and employees and complemented NetApp's existing growth trajectory, we remain highly confident in our already compelling strategic plan, market opportunities and competitive strengths," Warmenhoven said.

Bidding war went over the top

"There comes a point in any negotiation where there's a price at which you will simply go no higher, and we reached it," NetApp Chief Marketing Officer Jay Kidd told eWEEK.

"Of course, we're flattered that EMC would spend $2.2 or $2.3 billion to keep Data Domain's technology out of the hands of NetApp."

Kidd said that NetApp's vision since the deal was announced in May was that Data Domain was "additional and incremental" to NetApp's product line.

"Data Domain was definitely a 'want,' not a 'need,'" Kidd said.

Industry analysts told eWEEK that they agree that the bidding between NetApp, the original mover in the Data Domain sweepstakes, and EMC got way out of hand. "Whichever company eventually makes the purchase will be paying far too much for what amounts to one point product," one analyst said.

Most observers also agree, however, that Data Domain has an excellent brand of deduplication—dedupe, as it is commonly called. Both competitors wanted that golden software inside their walls to sell to the small and midsize business market.

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.

There was no immediate comment from EMC.

"It is going to be an interesting integration process for EMC [to bring in Data Domain]," Enterprise Strategy Group storage analyst Brian Babineau told eWEEK.

"They [EMC] have not really integrated a platform business like this since Data General/CLARiiON [in the 1990s]."