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Iomega is indicating it is willing to consider EMC’s latest offer, a $205.5 million cash buyout bid presented March 18.
The consumer storage hardware maker said it is prepared to begin talks with EMC regarding the acquisition of its 54.8 million outstanding shares.
The latest bid comes after Iomega’s board of directors unanimously turned down EMC’s $178 million March 10 buyout bid takeover bid. EMC on March 18 improved its proposed buyout offer from $3.25 to $3.75 a share. Iomega’s stock closed the trading day at $3.59.
But the Iomega board and shareholders have a big decision to make over the next few weeks: whether to continue pursuing a deal announced last December with the Chinese government, which is in the process of buying a substantial stake in the company; or to develop a new buyout agreement with EMC.
The deal with the Chinese is a stock trade deal and much more complicated than the all-cash EMC offer.
On Dec. 12, Iomega announced that it planned to acquire ExcelStor Great Wall Technology, an $800 million hard drive manufacturer based in China, through an exchange of stock.
Iomega planned to issue approximately 84 million shares of common stock, representing roughly 60 percent of the market value of the company, in exchange for 100 percent of ExcelStor, CEO Tom Kampfer told eWEEK at the time. When the deal is to be completed in mid-2008, he said, $2.6 billion Great Wall Technology-which now owns 60 percent of ExcelStor-will own about 43 percent of Iomega’s stock, making GWT the largest Iomega shareholder.
Deal could increase Iomegas value
Great Wall is an indirect subsidiary of China Electronics, a $16 billion conglomerate which, in turn, is wholly owned by the Chinese government. CEC, which owns 62 percent of Great Wall, will end up with about 25 percent of Iomega through the stock trade transaction, Kampfer said. Iomega itself would end up with only 32 percent ownership.
“At this point, we are getting ready to send proxy papers to the FTC on the Chinese deal,” Iomega spokesperson Chris Romoser told eWEEK. “So that deal is continuing as originally planned. We expect it to be completed around mid-year. Our board has simply empowered a committee to look into the EMC offer.”
A look at the SEC filings shows that Iomega, if it were to complete the Chinese deal, could become worth far more than the $3.75 per share EMC is offering at this time. But the stock deal is based upon assumptions of future worth, as is any such transaction.
In addition, there is a $7.5 million “breakoff” penalty Iomega will have to pay to ExcelStor if the Chinese deal is not completed.
Thus, the Iomega board has some key decisions to make.
Meanwhile, Iomega has a number of products that EMC would like to use in its initiative to move deeper into mid-market sales. For example, Iomega’s REV line could support EMC’s drive to offer more consumer solutions and hybrid products for home businesses and remote offices. “These two companies have been partners for a long time,” Bob Laliberte, storage analyst with Enterprise Strategy Group, told eWEEK. “It would seem to be a natural progression for EMC to acquire Iomega in order to continue to develop more consumer-oriented products. EMC could then offer hybrid-type products for both home businesses and remote offices, using Iomega’s REV line.” Iomega has sold more than 400 million digital storage drives and disks since its founding in 1980. The company is well known for such consumer products as the Zip and Jaz storage drives.