EMC Outbids NetApp for Data Domain

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NetApp’s (NASDAQ: NTAP) offer to acquire data deduplication specialist Data Domain (NASDAQ: DDUP) just became a bidding war.

EMC (NYSE: EMC) late today offered $30 a share for the dedupe pioneer, a 20 percent premium to NetApp’s offer made less than two weeks ago.

EMC’s all-cash offer values Data Domain at $1.8 billion. EMC said its offer isn’t subject to financing or due diligence contingencies, and the company said it is “promptly commencing a tender offer for all outstanding Data Domain common stock in order to expedite the timing of this transaction.”

EMC CEO Joe Tucci said in a statement, “Strategically, this combination will further enhance our ability to broaden EMC’s best-in-class storage portfolio for the benefit of EMC and Data Domain customers and this, in turn, will accelerate EMC’s top-and bottom-line growth rates.”

Tucci added, “The combination of EMC and Data Domain technologies will strengthen EMC’s leadership in the fast-growing and very important next-generation disk-based backup and archive market, and will also result in a business larger than a billion dollars for EMC in 2010.”

EMC said it made the offer to acquire Data Domain “for its fast-growing revenue base, its strong data protection-focused management team and sales force and its highly complementary storage software technology that will help to accelerate both companies’ ability to deliver industry-leading next-generation disk-based backup and archiving solutions for customers.”

Some analysts on a conference call following the announcement wondered if EMC was simply trying to keep Data Domain out of NetApp’s hands, a charge Tucci denied.

EMC partners with Quantum (NYSE: QTM) for its dedupe technology, so a deal with Data Domain would likely raise uncertainty about the future of that deal.

On the call, Tucci cited the synergy between Data Domain’s target-based dedupe approach and EMC’s source-based Avamar technology. He also cited the EMC Disk Library (EDL) 4000, which uses Quantum’s dedupe technology, as part of EMC’s overall dedupe strategy, and said EMC will continue its relationship with Quantum.

Enterprise Strategy Group analyst Lauren Whitehouse is among the analysts puzzled by EMC’s offer.

“It does appear as if EMC is just playing the spoiler here,” Whitehouse told Enterprise Storage Forum. “I’m not sure what their motivation is otherwise. Bidding on Data Domain is not a great statement about its investments in deduplication technology from Avamar or Quantum. The Avamar technology has been successfully integrated and is being embraced in the market. Since it is source-based deduplication, Data Domain could possibly complement Avamar. Regarding Quantum, I don’t know that there is room for both Data Domain and Quantum in the same portfolio. The bid by EMC doesn’t bode well for Quantum.”

Dedupe has been one of the hottest data storage technologies in the last year, as users have latched onto the data reduction technology to save on storage costs in a tough economy.

Data Domain shares traded above $30 a share in after-hours trading tonight, suggesting that traders think NetApp may make a counter-offer.

“This is going to be very interesting,” said Enterprise Strategy Group analyst Brian Babineau. “NetApp has showed its cards; it has to counter. How will it beat all cash
is the big question. There will be a winner and a loser in the battle.”

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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 Time.com, 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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