Iomega Rejects EMC Offer

In a move that says as much about the market as the players involved, Iomega has turned down an offer from EMC to purchase Iomega for about $178.1 million.

Iomega's board met Sunday and decided that EMC's offer to acquire 54.8 million shares of Iomega common stock at $3.25 per share wasn't a "superior proposal." The deal breaker is apparently Iomega's plan, announced in December 2007, to merge with several affiliates of a China-based firm called ExcelStor, which manufactures some of Iomega's hard disk drives, including its REV series of removable drives, which ExcelStor has manufactured since 2004.

According to Iomega's official statement in December: "Iomega will issue approximately 84 million shares of common stock in Iomega in exchange for all outstanding ExcelStor common shares, representing in the aggregate 60% of the fully diluted capitalization of Iomega, to be measured as of the closing date. The Boards of Directors of both Iomega and ExcelStor have unanimously approved the share purchase agreement."

While the contents of EMC's offer were confidential, an Iomega spokesman indicated that the terms precluded Iomega's purchase of ExcelStor. But neither firm would add any details.

EMC's offer isn't surprising. Back in November 2007, EMC CEO Joe Tucci voiced his company's commitment to consumer and SMB storage, stemming in part from the the growth of Web 2.0 applications.At the same time, Iomega's financials bear out an increased demand for consumer storage and other technologies related to NAS and direct-attached storage wares. For the year 2007, for instance, Iomega reported total net revenue of $336.6 million, up 47 percent due to 86 percent growth in consumer storage sales and 35 percent growth in sales of network storage (for instance, Iomega's REV removable disk system).

Demand in these areas has led to an upswing in technologies like removable storage, about which Iomega and others made announcements at the CeBit tradeshow in Europe last week. There has been increased interest, too, in optical storage and solid state disk, where EMC has also pledged commitment.

Iomega also offers a 500-Gbyte Ultramax hard disk drive, as does rival Buffalo.

With all this going on, it seems Iomega believes itself in a position to do better on its own, albeit with the ExcelStor merger, than it would under EMC's wing. But given the volatility of M&A these days (Packeteer's semi-hostile bid from investor Elliott Associates and Microsoft's February bid for Yahoo come to mind), it's anybody's guess just how this will turn out.

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