EMC Takes Data Domain Prize from NetApp

EMC (NYSE: EMC) has bested rival NetApp (NASDAQ: NTAP) in the bidding war for Data Domain (NASDAQ: DDUP).

NetApp announced late today that it “will not revise its proposal to acquire Data Domain in the wake of EMC’s higher unsolicited offer, and that NetApp and Data Domain have terminated their merger agreement.”

Following NetApp’s announcement, Data Domain said in a statement that it has “entered into a definitive merger agreement with EMC” and canceled the Aug. 14 shareholder vote on the proposed merger with NetApp.

EMC said in its statement that the deal will be neutral to the company’s earnings this year, and add to its bottom line next year. The company expects the deal to close by the end of the month.

EMC CEO Joe Tucci stated, “This is a compelling acquisition from both a strategic and financial standpoint. We look forward to bringing Data Domain together with EMC to form a powerful force in next-generation disk-based backup and archive. I have tremendous respect for Data Domain’s people, technology and business, and anticipate great things ahead for our respective companies, our customers and partners.”

EMC’s victory ends a six-week bidding war for the data deduplication pioneer that escalated into a legal battle amid shareholder claims that Data Domain was unfairly favoring NetApp in the negotiations.

EMC’s winning bid of $33.50 a share values Data Domain at a little more than $2 billion, or about seven times the company’s revenues in the last four reported quarters. Including Data Domain’s cash on hand, the deal comes to about $2.4 billion for the company, which analysts expect to grow at about a 30 percent rate over the next few years. EMC’s sales force could add to that growth rate.

CEO NetApp Dan Warmenhoven said in a statement that the company is “highly confident in our already compelling strategic plan, market opportunities and competitive strengths.

“NetApp applies a disciplined approach to acquisitions, one focused intently on creating long-term value for our stockholders,” he added. “We therefore cannot justify engaging in an increasingly expensive and dilutive bidding war that would diminish the deal’s strategic and financial benefits.”

Still, the failed takeover attempt could raise questions about NetApp’s dedupe strategy — and could make the company itself a takeover target, some have speculated.

EMC’s victorious bid for Data Domain could also be bad news for Quantum (NYSE: QTM), its current dedupe partner.

Enterprise Strategy Group analyst Brian Babineau said NetApp’s next step is “to figure out where to get some growth. They wanted Data Domain because it was a business. My sense is that NetApp doesn’t want to buy another startup; rather, they want someone who has a complementary product portfolio.”

EMC, Babineau said, “has a huge integration challenge on its hands, but it also has just given its sales force a tremendous product.”

Quantum, he said, “could use a new dance partner soon, but EMC just made their financial troubles go away for the time being,” with its latest financial assistance last week.

NetApp said it has received a $57 million break-up fee from Data Domain to terminate their merger agreement.

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