EMC’s Data Domain Bid Puts NetApp in Tough Spot, Says Analyst

EMC’s all-cash bid to buy Data Domain is going to be hard to beat, according to Stifel Nicolaus analyst Aaron Rakers.

EMC’s US$1.8 billion bid, announced Monday, is worth $30 per share in cash, a 20 percent premium over a previously accepted bid by NetApp of $25 per share. NetApp’s bid included payment of $11.45 in cash and 0.75 shares of its stock for each Data Domain share.

NetApp may increase its bid, Rakers suggested in a research note issued Tuesday.

However, “EMC’s all-cash offer, and likely further room to increase, puts NetApp in a tough position in terms of a counteroffer,” he observed.

NetApp spokesperson Kevin York declined the E-Commerce Times’ request to comment Tuesday on any possible counteroffer to the EMC bid.

Data Domain spokesperson Edward Luboja also declined Tuesday to answer questions from the E-Commerce Times about the competing bids, or whether the company has heard about possible counteroffers.

All-Cash Bid

Data Domain’s shares were up nearly 19 percent in early afternoon trading on Tuesday, one day after the announcement. EMC’s shares were up 2 percent. NetApp was trading off 5 percent.

EMC first plans to buy all of Data Domain’s outstanding shares of common stock, followed by a second step in which it would merge any remaining shares.

Data Domain would emerge as a product division within EMC, and its senior management team would remain intact, Data Domain CEO Joseph Tucci said in a letter to Data Domain president Frank Slootman, released as part of its announcement of the bid.

NetApp and Data Domain announced plans to merge on May 20 in a deal valued at $1.5 billion.

The companies lauded the deal as one that would help fast-growing Data Domain expand sales worldwide.

However, EMC officials said their deal was better because it was all-cash, offered more certainty, and provided better synergies than the NetApp deal.

Different Methods of Deduplication

Deduplicating technology involves removing repetitive pieces of information — multiple copies of identical documents stored in different files, for instance — and replacing them with pointers leading back to the original source.

Data Domain’s deduplicating technology, which differs from EMC’s, would be a good fit in a combined company, EMC officials said.

Data Domain specializes in target-based deduplicating technology that uses network-attached appliances to process data sent across the network for storage. EMC specializes in source-based technologies, which use software to remove duplicate entries before transporting data across the network.

EMC projected combined deduplicating revenue of $1 billion in 2010, a figure that Stifel’s Rakers said could result in a 4-cent boost to EMC’s 2010 earnings per share figure.