EMC-NetApp Takeover Battle a Culture Clash? - EnterpriseStorageForum.com

EMC-NetApp Takeover Battle a Culture Clash?

Is the battle between EMC (NYSE: EMC) and NetApp (NASDAQ: NTAP) for Data Domain (NASDAQ: DDUP) something of an East Coast-West Coast tech culture clash?

Some storage industry observers think that could be one of the issues behind Data Domain's apparent preference for NetApp over East Coast rival EMC. Data Domain could shed some more light on the issue when it issues a formal response to EMC's all-cash takeover offer some time in the next week.

EMC published an open letter yesterday from CEO Joe Tucci that was intended to reassure Data Domain employees while reiterating the company's claim that its offer is superior to NetApp's cash-and-stock offer. The letter was also published in the San Jose Mercury News.

Tucci noted that EMC has acquired 11 companies in the last six years in the Silicon Valley area and has about 6,000 employees in the region.

"We are very mindful of culture — respecting and preserving the various cultures that made the companies we acquired successful in the first place," he wrote. "In nearly every instance, after joining EMC, these businesses have grown faster, advanced the development of their technologies more rapidly, reached more customers, and provided greater career opportunities for their people than they had been able to do on their own."

Taneja Group founder and consulting analyst Arun Taneja said that "if all else were equal, I think Data Domain employees will probably stick with a Silicon Valley company. I have lived and worked on both coasts and I know how they feel. I happen to think it is not necessarily true, especially today when the coastal cultures in the high-tech field are much closer than they were twenty years ago."

Another connection between Data Domain and NetApp — besides being separated by just a few miles in Santa Clara and Sunnyvale — is that NetApp CEO Dan Warmenhoven and Data Domain CEO Frank Slootman "both share a Dutch heritage and are known to be close," said Taneja. "Maybe none of these is the factor, but once you combine them, you start to see why Data Domain employees might favor being part of NetApp."

Taneja said EMC "is known to be a hard company to work for, but the fact is they have done a great job of absorbing companies and their employees." NetApp, on the other hand, "is known as a fine place to work, but their acquisition record is not that great."

Taneja cited Avamar, Kashya and WysDM as a few of EMC's successful acquisitions, and noted that NetApp has struggled with the acquisitions of Spinnaker Networks, Alacritus and Topio. "There are stories of internal political battles that have kept the Spinnaker technology to still not be incorporated across the board," he said. "The Topio product was killed. The Alacritus product has produced nothing of value that I can see."

“They are a balls-to-the-wall, kick-ass, no excuses culture and always have been.”

— Steve Duplessie on EMC

Enterprise Strategy Group founder and senior analyst Steve Duplessie said EMC "has always had a less-than-fun-place-to-work reputation — and rightfully so. They are a balls-to-the-wall, kick-ass, no excuses culture and always have been. Those traits and 'fun' typically don't go hand in hand. Having said that, fun doesn't equate to money normally."

Duplessie agreed that one issue in the merger discussions is "an absolute East Coast paranoia versus West Coast lax thing for sure."

"EMC has no way to reach the stakeholders outside of moves like this, so while it's semi-generic, all he was trying to do was remind them that the EMC offer is all cash, and that EMC is really big and successful, in case they forgot," said Duplessie.

“I would rather be at an evil, arrogant, aggressive company than in a 'nice' company...”

— Kaushik Roy

Wedbush Morgan analyst Kaushik Roy agreed that corporate culture could be an issue in the takeover battle, but he said EMC "is much nicer now" than it was a decade ago.

"EMC doesn't have much pricing power these days and has become too big to be arrogant and aggressive," Roy said. But he added: "I am not sure if that is good or bad. I would rather be at an evil, arrogant, aggressive company than in a 'nice' company such as IBM."

NetApp was recently named Fortune magazine's best place to work, but Roy said his own recent checks indicate that "people were not too happy at NetApp because the company was hiring at a very high rate and there was confusion in the organization," and several employees left voluntarily at the end of the company's fiscal fourth quarter in April to go to other companies — including Data Domain.

StorageIO Group founder and senior analyst Greg Schulz said EMC "is by no means a summer holiday camp, but it is also a culture that many in different skill sets and occupations have prospered quite well in. ... I would be surprised if the NetApp folks were not also telling the Data Domain people, directly or indirectly, that NetApp is the best place for them and a closer cultural fit."

EMC employees have mounted their own PR offensive as the debate has intensified, noting in blog posts that the company is much different than it has often been portrayed.

EMC Makes Its Case

But Enterprise Strategy Group analyst Brian Babineau said Tucci's letter isn't as much about corporate culture as it is about making the case that the company's offer is better than NetApp's.

"Both EMC and NetApp have to prove to shareholders that their offer is superior," Babineau said. "This goes beyond the financial aspects of the transaction. Each company has to prove that it will bring more success to Data Domain — its technology and employees — than the other after the deal is done. Because EMC's offer was not accepted by Data Domain's board, they have a bit more legwork to do from the marketing side, and I expect that this letter is one of many tactics to come. The employees are a great starting point, as many are shareholders and EMC has to fight the East Coast company bias."

Perhaps the most interesting aspect of the debate is that the bidding war seems to have peaked and become a PR battle. Neither side has tried to outbid the other since EMC first raised the stakes on June 1, and no other bidder appears to be involved as of yet.

"I believe EMC can easily up the bid and end the story right now," said Roy. "But why pay higher? It is a game where they are trying to get the lowest possible price. It is not so much about employees to decide, but more for shareholders to decide. The Data Domain shareholders I have spoken with have all indicated that they like EMC's all-cash offer.

"Tucci's letter to employees is nice but not so relevant," Roy added, "just like Warmenhoven raising concerns about antitrust — we do not think that it is relevant. Both Tucci and Warmenhoven are playing politics and not finance here."

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