Data Domain Board Votes to Reject EMC Takeover Bid

UPDATED: The board had accepted a revised offer of $1.9 billion in cash and stock from NetApp on June 3 and intends to stick to it. However, it is possible that EMC may use litigation to take its case for an all-cash, $1.8 billion acquisition to the Data Domain shareholders.

The board of directors of storage systems maker Data Domain has voted to reject enterprise storage giant EMC's unsolicited offer to acquire it for $1.8 billion in cash, the company said June 15.

The board accepted a revised offer of $1.9 billion in cash and stock from NetApp on June 3 and intends to stick to it. NetApp, located in Sunnyvale, Calif., only a few miles from Santa Clara-based Data Domain, made the first move for Data Domain -- offering $1.5 billion -- on May 20.
EMC and NetApp both want to acquire Data Domain for its highly regarded storage deduplication appliances, which are fast, scalable, cost-effective and easy to use. The devices are quickly becoming more desirable for enterprises than the slower-moving virtual tape libraries that EMC and NetApp each sell.
Later on June 15, EMC reiterated that its all-cash offer for $30 per share is "superior" to the NetApp part-stock counter offer.
EMC Chairman, President and CEO Joe Tucci said that "EMC's all-cash offer meets all of Data Domain's stated objectives. We do not believe that Data Domain stockholders will approve the proposed transaction with NetApp. EMC remains committed to successfully completing this transaction."
Jay Kidd, chief marketing officer for NetApp, told eWEEK that the date for a Data Domain shareholders' meeting has not been set and is subject to SEC regulatory guidelines.
"We believe our offer is superior, and if we and the board of Data Domain can convince the shareholders of the same thing, then they will approve," Kidd said. "Every shareholder will have to make their choice; 'convincing' may be too strong a term. It won't be the shareholders deciding between two options on the same date. They'll have to decide [separately] to accept or reject the NetApp offer, or accept or reject the EMC offer.
"Our belief is that we can get to a vote before EMC, because we believe EMC is going to run into antitrust problems," Kidd said.
"Our board is committed to enhancing stockholder value and, after careful review with our outside advisers, determined that the $30 per share EMC offer is not in the best interests of our stockholders at this time," said Frank Slootman, president and CEO of Data Domain.
NetApp CEO and Chairman Dan Warmenhoven, naturally, was happy with the Data Domain board vote.
"This announcement reaffirms our belief that the NetApp proposal provides attractive short- and long-term value to Data Domain stockholders with no significant antitrust concerns and a clearer and more timely path to close," Warmenhoven said.
Warmenhoven pointed out that the similarity of cultures between his company and Data Domain is a key factor in the acquisition.
"We believe employees will benefit from cultural compatibility and the ability to accelerate productivity and innovation given the existence of complementary products and a larger base of resources," Warmenhoven said.
"In our merger, we believe customers will benefit from a lower risk of business disruption, continued competition, an enhanced products and services offering, and the ability of the NetApp sales and marketing organization to bring Data Domain's products to more enterprises in the United States and to more customers in Europe and Asia."
EMC may not bow out yet
EMC, however, is an aggressive, acquisition-oriented company with a great deal of cash and liquid assets that is accustomed to getting what it wants, so it is possible that the bidding war still is not over. EMC has taken over about 50 storage- and security-related companies in the last six years.
It's also no secret that EMC would like to extend its reach into the midrange and SMB storage markets during the next few years, and Data Domain would be one way to improve that standing.
It is possible that EMC may use litigation to take its case to the Data Domain shareholders.
In addition, at least one law firm, Brodsky & Smith, is investigating potential claims against the Data Domain board on behalf of shareholders "for failure to maximize shareholder value," according to a statement the firm released to the press on June 8.
If its revised $1.9 billion agreement with Data Domain does become final, NetApp will acquire all of the outstanding shares of Data Domain's common stock for $30 per share in cash and stock. The deal is expected to close in 60 to 110 days, NetApp said.
Editor's note: This story was updated to include additional responses from EMC and NetApp.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...