Comment Dan Warmenhoven must have gnashed his teeth. Just when he was showing off his bright and shiny brand new Data Domain toy, up comes EMC and gazumps him, offering 20 percent more - and all cash at that! - to Data Domain shareholders. Ouch.
Joining the NetApp CEO in grimacing would have been Quantum CEO Rick Belluzzo, whose company has just received a $100m loan from EMC to help develop its DXi disk backup data deduplication technology, the same general class of technology that Data Domain sells in its products.
Belluzzo must be having thoughts, rueful thoughts maybe, that EMC is not buying Quantum for its deduplication technology. He's probably tempering them with the realisation that this isn't a pure technology buy.
EMC wants a market-leading deduplication product supplier with a rounded product set, a technology and feature roadmap, an enthusiastic channel, and a supplier keen to energetically broaden its channel. Quantum just cannot offer Data Domain's market presence and track record and is anyway still beholden to tape, an anathema to disk-loving EMC.
EMC boss Joe Tucci has proposed spending $1.8bn to buy Data Domain and that, besides the $100m extended to Quantum, shows that EMC is deadly serious about the importance of deduplication. It thinks Data Domain has terrific technology with demonstrated market leadership.
Frank Slootman, Data Domain's CEO, must be pleased at the potential increase in his net worth, and mollified at EMC's emphasis on retaining himself and his management team. He may be wistful that he didn't hold out for another $300m with NetApp, and surely hacked off that a joint NetApp/Data Domain marketing attack on EMC is unravelling.
But his problem, and that of his board and executives, is deciding if Data Domain is better off in Sunnyvale with NetApp or stepping inside the big tent represented by EMC in Hopkinton. If their best option is NetApp then they have to work with NetApp to craft a takeover that Data Domain's shareholders will prefer.
The EMC announcement and letter to Slootman says that this is an offensive bid, rather than a defensive bid. Hmmm. There is a train of thought that says if the Quantum technology is so good, then there is no need for EMC to look towards Data Domain. That would indicate that this is a defensive bid by EMC, one geared to prevent Data Domain falling into NetApp's hands and amplifying its attack on the potential purchasers of EMC's DL 3D - deduplicating Disk Library products - courtesy of the large NetApp channel.
EMC is playing against perceived NetApp weaknesses. It says it has a better track record than NetApp on acquiring and integrating companies, an oblique swipe at NetApp's difficulties with Spinnaker and Topio. It's making an immediate tender offer for all Data Domain shares and says its bid is a superior one within the terms of the NetApp acquisition of Data Domain. Shareholders get a straight $30/share instead of $11.45 cash plus 0.75 NetApp shares for each Data Domain share, worth $25/share. There is no need for due diligence or time-consuming financial arrangements.
You can feel the heat coming off the Hopkinton hustle. Come on baby, EMC is saying. Let's dance, right now!
If the bid goes ahead then EMC would have three significant deduplication technologies: Avamar; the licensed Quantum DXi software; and Data Domain's. It says that Avamar's source-based deduplication is distinctly different from Data Domain's target-based deduplication and that Data Domain would complement the DL 3D products. Indeed, a new DL 4000 is due.
That will cut little ice with people thinking that the DL 3D line overlaps with Data Domain's product: it takes months to prep a new product release whereas the Data Domain bid has been put together in just weeks. For people with this opinion they will see an eventual end-of-life looming for one technology - inevitably the Quantum one, given the obvious preference shown for Data Domain here.
It's all very well having separate deduplication silos, but big gains will come from being able to globally deduplicate data centrally that has come in from branch offices, where it will probably already have been locally deduped. Indeed, Quantum's recent DXi2500-D announcement provides a branch office local dedupe appliance with replication to a central DXi7500 box, completely in line with this idea.
It would therefore be good to replicate the centrally deduped data to a disaster recovery site. This scenario implies consistent deduplication technology across multiple tiers and locations of storage. Having different dedupe silos would be an obstacle to this.
The way Dan Warmenhoven and Frank Slootman told it to NetApp employees, the NetApp bid for Data Domain was apparently cooked up in private. Yet the EMC letter talks of prior and known EMC interest, stating: "We are disappointed that we were not given an opportunity to explore a business combination prior to the announcement of your proposed transaction with NetApp, particularly since I believe you should have been aware of our interest."
It seems clear that there has been no direct executive-level contact between EMC and Data Domain, however. We have a hostile bid by EMC - one which many will judge to be defensive - which puts Data Domain firmly in play. Its share price rose to $24 after the NetApp bid was announced, from $17.91 the day before that bid. The shares are now trading at $31.38, rendering the NetApp bid much less attractive, and slightly above the EMC bid level.
Will NetApp come back with a higher bid - something around $2bn - or will it fold its hand? If it folds then it will have a perceived weakness in the disk backup dedupe product area, and will face an EMC-energised Data Domain attacking its current and potential customers. It is what some would call a lose:lose scenario.
For NetApp to press ahead would mean a significantly higher offer and perhaps one with a greater cash element. It's all very well having a great relationship with Slootman and his board and executive team, but the Data Domain shareholders have the last word and they are having lots of EMC dollars dangled in front of their eyes.
Their message to NetApp must be: "You wanna dance? Then buy me dancing shoes, baby. A good pair. More than $30." Has NetApp got access to a deep enough wallet?
It's also possible that other vendors will enter the fray. Some observers would say HP could do with a stronger mid-range dedupe product. Its OEM'd Sepaton product line has great high-end strengths, while its in-house dedupe technology doesn't have anything like Data Domain' traction.
Then there is Dell, which has said it will do something with Quantum's DXi technology and which already uses Symantec and CommVault dedupe products. Is it now contemplating bidding for the dedupe market leader?
If it does, then it might assume the bidding will head towards $2.5bn, assuming NetApp responds at the $2bn level, with EMC rebidding at $2.2bn or thereabouts. HP would be having similar thoughts.
Does this imbroglio also imply that FalconStor is also in play? That company has just released a statement saying it has the fastest VTL, deduplication and replication technology of them all. Is this a signal?
Data Domain and NetApp will issue responses later today. Let's sit back and enjoy the coming show. ®