UPDATE: Data Domain Board To Review EMC Bid, Still Backs NetApp
June 04 2009 - 11:14AM
Dow Jones News
Data-storage company Data Domain Inc. (DDUP) said Thursday its
board is reviewing the nearly $1.9 billion all-cash acquisition
offer from EMC Corp. (EMC) and urged shareholders to take no action
regarding that tender offer.
Data Domain also reaffirmed its recommendation in favor of the
deal with NetApp Inc. (NTAP), which offers the same price as EMC at
$30 a share but pays it in both cash and stock. Data Domain's
comments, the morning after accepting NetApp's offer, are another
move in a continuing chess match to acquire the company and its
highly-prized de-duplication technology.
"I think it's more than likely we haven't seen the final offer,"
said Ashok Kumar of Collins Stewart LCC.
Many expect EMC to eventually raise its offer and ultimately
acquire Data Domain because it has a larger war chest than NetApp.
Data Domain's comments Thursday are seen not only fulfilling the
company's fiduciary duties but also possibly prompting EMC to
sweeten its offer.
A spokesman from EMC reiterated the company's Wednesday
statement that their offer is "superior" and declined to comment on
the possibility of any future offers.
Data Domain and NetApp weren't immediately available for
comment.
Data Domain shares continue to trade above the per-share offer
price of $30 a shares, recently adding 22 cents to $32.76. EMC
shares gained 1.9% to $12.72, and NetApp rose 18 cents to
$18.75.
Both EMC and NetApp are offering to buy Data Domain for the same
price, except EMC is offering all cash, while NetApp's offer
involves cash and stock. All-cash offers are usually considered
more favorable, especially by institutional holders. That's why
Data Domain's rapid acceptance of NetApp's offer late Wednesday
surprised many, although some see it as a negotiating ploy.
"By siding with what we view as the weaker offer in this
struggle," ThinkEquity analyst Rajesh Ghai wrote in a research note
Thursday, "the DDUP Board has ensured that the winning bid will
move beyond $30. Had the Board decided to go with EMC's offer, the
'game' would be over today."
"We believe it is an excellent strategy ... to prolong the
bidding war and, of course, unlock even more DDUP shareholder value
in the process," Ghai said.
The rapidly intensifying battle for Data Domain underscores the
company's attraction to technology vendors seeking to help their
corporate customers manage information. De-duplication, which Data
Domain specializes in, automates the removal of multiple copies of
the same piece of information from the storage servers of corporate
data centers to free space and save costs.
Notably, Data Domain's stock price has more than tripled from
its March 16 low, and Wall Street is expecting more gains, keeping
Data Domain's shares above the offers' per-share price. Jefferies
& Co. analyst Bill Choi has said Data Domain could go for up to
$35 a share.
However, a higher bid is a riskier proposal for NetApp, which is
significantly smaller than EMC and its market cap of about $25.6
billion. NetApp's market cap is $6.2 billion.
Already, the long-term success of a possible $2 billion buy of
Data Domain is more of a make-or-break proposition for NetApp, said
Steve DuPlessie, storage industry analyst at Enterprise Strategy
Group.
"If EMC wins and screws it up entirely, it's not going to put
them out of business," DuPlessie said.
However, analysts generally think NetApp won't have to worry
about the pressure to make a Data Domain integration work.
"NetApp will be left at the altar," Kumar said.
-By Veronica Dagher, Dow Jones Newswires; 201-938-4290;
veronica.dagher@dowjones.com
(Mike Barris contributed to this story),