Data Domain’s Just Not That Into EMC

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Data Domain (NASDAQ: DDUP) has once again said it favors NetApp (NASDAQ: NTAP) over rival EMC (NYSE: EMC) in the bidding war for the data deduplication specialist, leaving the next move up to EMC.

Data Domain said today it continues to favor NetApp’s cash-and-stock offer over EMC’s all-cash offer for the company, a position Data Domain first took two weeks ago.

EMC and NetApp are both offering $30 a share, or around $1.9 billion, for Data Domain, which pioneered the market for technology to eliminate duplicate data, saving users a bundle on storage hardware costs.

Data Domain said in a statement that “after careful consideration with its outside financial advisor and legal counsel,” it has once again rejected EMC’s offer.

Data Domain said NetApp’s offer is a “binding, negotiated commitment,” and if the company hadn’t rejected EMC’s offer, NetApp could have walked away from the deal. Data Domain noted a number of conditions in EMC’s offer, and said EMC has yet to agree to the confidentiality and “standstill” terms required to begin negotiations.

Data Domain also said it would face a $57 million breakup fee if the NetApp agreement were terminated.

EMC CEO Joe Tucci said in a statement that the company believes its offer is superior to NetApp’s. “We believe that EMC’s $30 all-cash offer is superior and delivers to Data Domain price certainty and price protection as well as the ability to close promptly,” Tucci said. “…EMC’s all-cash offer meets all of Data Domain’s stated objectives. We do not believe that Data Domain stockholders will approve the proposed transaction with NetApp. EMC remains committed to successfully completing this transaction.”

NetApp CEO Dan Warmenhoven issued his own statement, saying the Data Domain 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.”

Warmenhoven also cited “cultural compatibility” between NetApp and Data Domain — one of the reasons analysts say that Data Domain has shown a clear preference for NetApp in the negotiations.

Stifel Nicolaus analyst Aaron Rakers said he believes that EMC will likely raise its offer for Data Domain, citing a Reuters report that EMC probably won’t raise its bid until closer to the investor vote on the NetApp deal.

Qatalyst Partners is serving as Data Domain’s financial advisor and Fenwick and West LLP is the company’s legal counsel.

Also today, the U.S. Federal Trade Commission informed the companies that it has begun an antitrust review of the competing bids. NetApp claims that EMC’s bid will likely face antitrust obstacles, a view largely dismissed by analysts.

And attorneys of two law firms, Bernstein Litowitz Berger & Grossmann LLP and Grant & Eisenhofer P.A., announced that they have filed a shareholder class action lawsuit against members of the board of directors of Data Domain and NetApp, claiming that Data Domain board members “are breaching their fiduciary duties to their shareholders by refusing to negotiate” with EMC “and for agreeing to sell Data Domain to NetApp without taking any steps to maximize the price paid to Data Domain’s shareholders.”

A Data Domain spokesman declined to comment on the lawsuit.

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Paul Shread
Paul Shread
eSecurity Editor Paul Shread has covered nearly every aspect of enterprise technology in his 20+ years in IT journalism, including an award-winning series on software-defined data centers. He wrote a column on small business technology for, and covered financial markets for 10 years, from the dot-com boom and bust to the 2007-2009 financial crisis. He holds a market analyst certification.

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