NetApp to review counteroffer for Data Domain

In light of a new buyout offer for Data Domain Inc. by EMC Corp., NetApp Inc. said today it plans to review "all of its options" in considering a counteroffer for the deduplication vendor.

"In response to EMC's revised, unsolicited offer, the NetApp Board of Directors will carefully weigh its options, keeping in mind both its fiduciary duty to its stockholders and its disciplined acquisition strategy," NetApp CEO Dan Warmenhoven said in a statement. He promised an update "shortly."

EMC Corp. today upped its all-cash offer to purchase Data Domain from $1.8 billion to $2.1 billion, once again one trumping NetApp, which had offered $1.9 billion.

EMC said that offer stands until midnight July 17.

While Data Domain has scheduled a special stockholders meeting on Aug. 14 to consider and vote on the NetApp merger proposal, EMC's offer is different from a merger agreement and Data Domain's stockholders need only decide to sell their shares to EMC by July 17.

Meanwhile, in an interview with Computerworld, an EMC executive argued that his company's offer is the most logical one for Data Domain shareholders. Matthew Olton, worldwide head of mergers and acquisitions at EMC, said his company is "dramatically" larger than NetApp and far more capable of infusing money into Data Domain to increase product development and worldwide marketing and sales. NetApp last year had $3.4 billion in sales while EMC reported $14.8 billion.

"I just have to believe it's much more of a strain on Netapp to digest an acquisition of this size than it is [for EMC]," Olton said.

In their respective offers for Data Domain, both NetApp and EMC included termination fees to be paid if Data Domain decided to walk away after agreeing to a merger. Today, EMC announced it had dropped any such deal protection clause. NetApp still has a termination fee in its proposal that would require Data Domain to pay it $57 million if it walks away from a deal.

"If I'm a stock holder of Data Domain..., the EMC offer is an all-cash offer," Olton said. "The NetApp offer is part stock and part cash. To me, anytime you have stock as part of the consideration you have some uncertainty of what the value of that stock is going to be over time. Maybe you sell that stock on the first day, but that's a second transaction you have to go through to realize the value."

NetApp had said that EMC's proposal to acquire Data Domain posed anti-trust problems because EMC already owns several deduplication technologies, including technology in its Avamar appliance product and in a virtual tape library that runs re-branded software from FalconStor Software Inc.

NetApp also sells data deduplication technology with its Advanced Single Instance Storage (A-SIS) software, which is now included as part of its Data OnTap operating system.

The Federal Trade Commission reviewed both applications to acquire Data Domain and determined last week that neither company posed an anti-competitive threat to the marketplace.

"NetApp's got a pretty interesting dilemma now," Olton said. "Even if they want to match the price we put out there, I think they'll never get the vote. If NetApp increases its bid, it's going to have to drop the deal protection, and they'll never do that if they don't think they can beat EMC on price. I honestly think even if they match the price, EMC's offer is superior nevertheless."

Copyright © 2009 IDG Communications, Inc.

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