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EMC on June 1 dropped a surprise financial bomb on longtime competitor NetApp’s $1.5 billion offer to acquire Data Domain.
EMC, the world’s largest external disk storage company, tendered an offer of $1.8 billion in cash, or 20 percent more than NetApp, which had announced May 20 a proposed transaction involving both cash and stock.
NetApp is attempting to acquire Data Domain for $25 per share of common stock. EMC is offering $30 per share.
EMC’s all-cash proposal “is superior to the proposed NetApp transaction, providing Data Domain stockholders [with] greater value and certainty,” EMC President, CEO and Chairman Joe Tucci said.
“Strategically, this combination will further enhance our ability to broaden EMC’s best-in-class storage portfolio for the benefit of EMC and Data Domain customers, and this in turn will accelerate EMC’s top-and bottom-line growth rates. Our proposal is a win-win for both companies,” Tucci said.
“The combination of EMC and Data Domain technologies will strengthen EMC’s leadership in the fast-growing and very important next-generation disk-based backup and archive market, and will also result in a business larger than a billion dollars for EMC in 2010.”
Go here to read the full text of the letter from Tucci to Data Domain containing the offer. NetApp did not immediately have a response to the counteroffer.
Data Domain, based in Santa Clara, Calif., has 825 employees and reported income of $300 million in 2008. NetApp, with 7,645 employees and located in neighboring Sunnyvale, Calif., reported $3.59 billion in revenue in 2008.
All three companies in this financial drama are well known in the storage industry for their utilization of data deduplication features. 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.
A combination of NetApp and Data Domain would create the market’s fifth-largest data storage company, ranking only behind EMC, Hewlett-Packard, IBM and Dell. EMC obviously does not want that merger to happen.
EMC Plays Hardball, but Why?
Reaction to the bidding war from the storage analyst community was swift.
“I see absolutely nothing logical in the move, and if I were NetApp, I would look at this as the world’s best Mulligan,” Steve Duplessie, founder and principal analyst at Enterprise Strategy Group, wrote in his blog. “EMC has 19 dedupe solutions already, owns Quantum, practically, and already sells more target-based backup systems than Data Domain. Why on Earth would they want to pay that much for another version of a feature that won’t support the only place they should be trying to play: the high end?
“Had they announced that they bought Sepaton for $400 million or so, I would have said OK, good move. But this? This was nuts when NetApp was doing it at $1.5 billion. It seems super-nuts now.”
Duplessie speculated that “maybe EMC is trying to get NetApp to spend even more than they wanted; their cash position is nowhere near EMC’s, so maybe they are super-smart and trying to get NetApp to spend $2 billion-which will be a huge blow to their cash position.”
Wikibon President and co-founder Dave Vellante, a longtime storage analyst and consultant, said he wondered how hard Data Domain “shopped the company” before settling on the NetApp bid.
“If I were a Data Domain shareholder, I wouldn’t be pleased, given that EMC is willing to spend $300 million than NetApp offered,” Vellante wrote in his blog. “I had always assumed EMC passed [on the deal] because it felt (as did I) that the NetApp bid was too high in these crazy economic times. But it’s obvious Data Domain didn’t really get what it could have from the NetApp bid.
“If NetApp counters and outbids EMC, EMC [exacts] some serious pain on NetApp. If EMC wins, it gets Data Domain; I could envision worse things than complete domination of the data reduction market. Bottom line: EMC doesn’t mess around. They saw an opportunity to play hardball and they took it,” Vellante wrote.