EMC Raises Data Domain Stakes Ahead of NetApp

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With the fear of federal antitrust challenges, EMC has increased its offer for Data Domain to $2.1 billion, ahead of NetApp

EMC, given the green light by US federal regulators to pursue its acquisition of Data Domain, 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 (£1.3 billion), in a bid to push the issue and to thwart an attempt by rival NetApp to buy the company.

In a letter dated 6 July, Joe Tucci, chairman, president and chief executive of EMC, told Data Domain chairman, Aneel Bhusri that not only is EMC willing to up its offer, but that it also could close the deal within two weeks – earlier than NetApp’s proposal – and remove 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 (£923 million). 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 US 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 (£1.2 million) after EMC’s first proposal of $1.8 billion (£1.1 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 1 June, 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 chief executive 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 centre 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 centre power and cooling costs. It also helps businesses reduce the carbon footprints of their data centres.

EMC already offers data deduplication capabilities through an original equipment manufacturer (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 salesforce 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 HP was “a long shot” to make a bid, he said.

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