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Data Domain (NASDAQ: DDUP) said late today it will accept NetApp’s (NASDAQ: NTAP) sweetened takeover offer, but EMC (NYSE: EMC) insists that its offer is superior.
NetApp set the ball in motion two weeks ago with a $1.5 billion offer for the data deduplication specialist, which EMC raised to about $1.8 million, or $30 a share, on Monday.
NetApp matched that offer this morning, and late today, Data Domain issued a statement accepting NetApp’s offer. EMC countered with a statement that its all-cash bid is superior to NetApp’s cash-and-stock offer and said it will continue with a tender offer for the company.
“EMC’s all-cash tender offer remains superior to NetApp’s proposed part-stock merger transaction,” EMC CEO Joe Tucci said in a statement. “We are proceeding with our superior cash tender offer, which is not subject to any financing or due diligence contingency. We do not believe that the Data Domain stockholders will approve the merger transaction with NetApp.”
Data Domain urged shareholders not to act on EMC’s offer until it has taken a formal position. “At this time, the board is reaffirming the recommendation in favor of Data Domain’s merger with NetApp,” the company said in a statement.
So how will the standoff be settled? Some analysts think NetApp may have the upper hand, as it already owns more than 20 percent of Data Domain.
Enterprise Strategy Group analyst Brian Babineau said Data Domain shareholders could be in for a lengthy proxy and legal battle — or NetApp could “raise the bid to be truly superior.”
Avian Securities analyst Matthew Bryson wrote in a research note that EMC is likely to raise its offer, but as Data Domain clearly favors NetApp over EMC, “NTAP may only have to match (rather than exceed EMC’s offer) given the board’s preference. As such, we believe the probability of winning the war for DDUP has shifted towards NTAP.”
One company with a lot at stake in the outcome is EMC dedupe partner Quantum (NYSE: QTM). Analysts believe that an EMC-Data Domain combination would leave little room for Quantum. And if EMC fails in its bid to acquire Data Domain, it would need to reassure customers that it remains confident in its current dedupe product lineup. NetApp, meanwhile, has been working on its own dedupe technology, but clearly covets Data Domain’s technology — and market share.
“If EMC wins, what happens to their Quantum relationship?” wondered Babineau. “What is NetApp’s response? And if NetApp wins, does EMC just go back to Avamar and its Quantum relationship for their VTL?”
Babineau said EMC could also win if NetApp is forced to overpay for Data Domain.
“EMC really is the winner,” he said. “They win if they get Data Domain, and they win if NetApp is bleeding at the end.”
Data Domain had $300 million in sales in the last year, and analysts expect the company to grow at a 30 percent rate over the next two years, according to Thomson Reuters.
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