EMC Leapfrogs NetApp, Ups Bid for Data Domain to $2.1 Billion

With the fear of federal antitrust challenges in the rearview mirror, EMC is upping its offer for data deduplication specialist Data Domain to $2.1 billion. The increased offer is the latest move in a back-and-forth between EMC and NetApp, which last offered $1.9 billion for Data Domain. However, the tug-of-war could be coming to an end, some analysts say. EMC is offering more money in its all-cash deal than NetApp, and the FTC's decision to remove all antitrust impediments means EMC can close the deal faster than NetApp. NetApp's CEO said the company is weighing its options.

EMC, given the green light by federal regulators to pursue its acquisition of Data Doman, is upping its bid for the storage deduplication company.

EMC is growing its offer for Data Domain by more than 11 percent, to about $2.1 billion, in a bid to push the issue and to thwart an attempt by rival NetApp to buy the company.

In a letter dated July 6, Joe Tucci, chairman, president and CEO of EMC, told Data Domain Chairman Aneel Bhusri that not only is EMC willing to up its offer, but that it also can close the deal within two weeks-earlier than NetApp's proposal-and removes any deal protection provisions that could have slowed the process. Such provisions would include a break-up fee obligation, for example.

"This last point is very significant to you and your stockholders," Tucci said. "Data Domain does not have any justification for continuing deal protection provisions for NetApp or any other party given our willingness to proceed without them. It was questionable agreeing to deal protections in your initial agreement with NetApp, when you knew of our interest in acquiring the company. There is no basis for continuing with them now."

EMC's increased bid is the latest move in a drama that started in May, when NetApp offered to buy Data Domain for $1.5 billion. The two suitors have gone back and forth over their attempts to buy Data Domain, though it appears that the competition may be coming to an end, according to Gartner analyst Roger Cox.

"It would be hard to see [the Data Domain board] turning this down," Cox said. "From a pure cash point of view, EMC has more cash than the other guy does."

EMC is offering more money than NetApp, and is offering an all-cash deal. That combined with the decision by the U.S. Federal Trade Commission-which had reviewed the proposed deal for antitrust issues-to remove all regulatory challenges and give a quick go-ahead to EMC to pursue the deal is enabling Tucci to promise Data Domain shareholders a quick closing to the deal.

NetApp initially offered $1.5 billion for Data Domain, then upped its offer to $1.9 billion after EMC's first proposal of $1.8 billion. NetApp's offer is a combination of cash and stocks.

"We continue to believe that a business combination with EMC will deliver substantial and superior benefits to your company's stockholders, customers, employees and partners," Tucci said in his letter to Bhusri. "Since June 1st, when we submitted to you our prior proposal, we have received wholehearted support from many of your stockholders and customers validating our confidence in these benefits."

In a written response, Dan Warmenhoven, chairman and CEO of NetApp, said the company is reviewing what its next steps should be.

"In response to EMC's revised, unsolicited offer, the NetApp Board of Directors will carefully weigh its options, keeping in mind both its fiduciary duty to its stockholders and its disciplined acquisition strategy," Warmenhoven said.

At the center of the bidding war is Data Domain's market-leading data deduplication technology. Data dedupe, a relatively new technology that is getting a lot of attention from enterprises, helps eliminate redundant data from a disk storage device, which in turn lowers storage space requirements and data center power and cooling costs. It also helps businesses reduce the carbon footprints of their data centers.

EMC already offers data deduplication capabilities through an OEM relationship with Quantum, though acquiring Data Domain could put that relationship at risk, Cox said. Acquiring Data Domain would enable NetApp to expand on its deduplication capabilities, he said. NetApp says that data deduplication is a key component of its OnTap operating environment.

In addition, it would expand NetApp's customer base and help it significantly grow its sales force by 20 to 25 percent, he said. Data Domain currently has a sales force of more than 400 people, according to Cox.

For EMC, a key reason for buying Data Domain would be to keep NetApp from acquiring the company and growing stronger, he said.

Cox said he doesn't expect any other suitors for Data Domain to emerge. IBM bought deduplication vendor Diligent Technologies last year, and Hewlett-Packard is "a long shot" to make a bid, he said.