Data Domain Rejects EMC's Offer; EMC May Raise Bid

Data Domain's board of directors on Monday issued a statement that urged shareholders to reject the offer by EMC to acquire the company for $30 a share "at this time" and encouraged them to vote in favor of a merger agreement with NetApp.At the same time, the Reuters wire service reported that sources said EMC planned to increase its offer for the storage vendor and its popular data deduplication technology, perhaps to as much as $35 a share.EMC made a bid to acquire Data Domain for $30 a share, shortly after Data Domain agreed to be acquired by NetApp for $1.5 billion in cash and stock. NetApp quickly increased its offer to match that made by EMC.Reuters reported today that "EMC's strategy, according to one of the sources who has knowledge of its thinking, is to either win Data Domain, or at least drive the price high enough to make the acquisition very expensive for NetApp and weaken the smaller rival's finances."The news service noted that EMC could easily outbid NetApp because of its stronger financial position, according to analysts. EMC had annual revenue of nearly $15 billion, while NetApp had revenue of around $3.4 billion in its last fiscal year. But a combination of EMC and NetApp could raise antitrust questions among regulators. "EMC has about $7.1 billion in cash, including $4 billion in the United States, and could go as high as $34 to $35 per share, said another source," Reuters reported.However, it appears that Data Domain would rather become part of NetApp than become part of EMC. "Our board is committed to enhancing stockholder value and, after careful review with our outside advisors, determined that the $30 per share EMC offer is not in the best interests of our stockholders at this time," Frank Slootman, president and CEO of Data Domain, said in a statement issued Monday. "We are pleased with the revised terms of NetApp's acquisition offer and feel it will provide great value to our shareholders and customers."The board said it considered a number of factors in making its recommendation, including the "merger agreement with NetApp represents a binding, negotiated commitment of both Data Domain and NetApp" and that EMC could drop its offer if Data Domain rejected NetApp. The company also said it had been unable to negotiate with EMC over its offer because EMC has not agreed to confidentiality and other issues needed for negotiations. Data Domain also noted that it would have to pay NetApp $57 million in termination fees if it agreed to EMC's offer.EMC Chief Executive Joseph Tucci will likely hold off on raising his bid until shortly before Data Domain shareholders meet to vote on NetApp's offer, because doing so will force the board to call off that gathering to evaluate the new proposal, the person familiar with EMC's thinking said, according to Reuters.NetApp issued a statement a few hours later. "We are very pleased with Data Domain's recommendation that stockholders continue to support NetApp's merger proposal over EMC's unsolicited offer," said Dan Warmenhoven, chairman and CEO of NetApp. "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. We look forward to proceeding with our proposal, bringing the offer to a stockholder vote, and beginning to execute on the promise of this compelling combination.""Importantly, we believe a combination of NetApp and Data Domain brings significant benefits to customers and employees," continued Warmenhoven. "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. Furthermore, 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."InformationWeek has published an in-depth report on private cloud computing. Download the report here (registration required).