EMC has raised its Data Domain bid from $30/share to $33.50/share, giving the company a $2.1bn valuation and potentially knocking NetApp out of the running.
EMC is trying to buy Data Domain in competition with NetApp which has made a part-cash, part-stock bid, also worth $30/share. Both EMC and NetApp want to bring Data Domain's market-leading deduplicated storage array products into their offerings. NetApp first offered $25/share which EMC trumped on June 1 with its $30/share bid, forcing NetApp to raise its bid to the same level.
The Data Domain Board had recently rejected EMC's $30/share bid in favour of the one from NetApp.
This bid raise by EMC strengthens views that it is serious about buying Data Domain. Some commentators had speculated it was simply trying to get NetApp to pay a higher price than it intended for Data Domain and so weaken itself financially.
A potential objection to either bid was the creation of too much market dominance in deduplication. The US Federal Trade Commission has been reviewing both the NetApp and EMC bids for Data Domain from this anti-trust point of view. It has cleared both bids to go ahead.
On the nuisance front, Data Domain is facing a couple of lawsuits saying it was negligent in its fiduciary duty in preferring NetApp's bid in favour of EMC's all-cash offer.
EMC said in a letter to Data Domain's board that its offer could complete in two weeks, about a month before the NetApp bid - it is not subject to any time needed for due diligence or cash-raising.
If Data Domain was not acquired by NetApp then it has to pay NetApp a $57m termination fee. EMC has removed any deal protection conditions, including any termination fee, from its offer.
EMC CEO Joe Tucci commented on the NetApp bid termination fee in the letter: "Data Domain does not have any justification for continuing deal protection provisions for NetApp or any other party given our willingness to proceed without them.
"It was questionable agreeing to deal protections in your initial agreement with NetApp, when you knew of our interest in acquiring the company. There is no basis for continuing with them now."
As the new EMC bid is significantly higher the Data Domain board will have to evaluate it and issue a recommendation to its shareholders. At this point it is hard to see how the board could say anything else other than that it is superior to NetApp's $30/share offer and shareholders should accept it. This would be a somewhat bitter pill for CEO Frank Slootman and other board members who have committed themselves to joining NetApp.
The EMC bid tender offer will close at midnight on July 17. As of last Friday its $30/share bid had attracted just 0.28 per cent of Data Domain's shares. This had risen to 0.32 per cent - 195,353 shares - on Thursday, July 1, according to the Wall Street Journal.
EMC's raise has now put the ball now firmly in NetApp's court and it must decide whether to match the EMC bid, raise it, or walk away. Data Domain shares are now trading at $33.21, indicating an instant Wall Street reaction that NetApp won't bid again.
Neither Data Domain nor NetApp have commented on the raised EMC offer. There is a Data Domain shareholder meeting on August 17 to vote on the NetApp bid. Unless NetApp responds to EMC's latest offer, that meeting will be pointless. ®