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EMC wins bid for Data Domain

Rival NetApp folds as the price escalates yet again, to $2.1b

By Hiawatha Bray
Globe Staff / July 9, 2009
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EMC Corp. has won the high-stakes bidding war for Data Domain Inc., with a rival data storage company, NetApp Inc., dropping out of the fight - two days after EMC boosted its bid to $2.1 billion.

“This is a compelling acquisition from both a strategic and financial standpoint,’’ Hopkinton-based EMC’s chief executive, Joe Tucci, said in a prepared statement. “We look forward to bringing Data Domain together with EMC to form a powerful force in next-generation, disk-based backup and archive.’’

In a news release, NetApp’s chief executive, Dan Warmenhoven, said the latest EMC bid pushed Data Domain out of his company’s price range.

“NetApp applies a disciplined approach to acquisitions, one focused intently on creating long-term value for our stockholders,’’ Warmenhoven said. “We therefore cannot justify engaging in an increasingly expensive and dilutive bidding war that would diminish the deal’s strategic and financial benefits.’’

“It appears that the bank has won,’’ said Brian Babineau, a senior analyst at Enterprise Strategy Group in Milford. “Cash is king, and he who has the most money usually wins at the end of the day.’’

Data Domain of Santa Clara, Calif., is a fast-growing producer of data “de-duplication’’ products, used by businesses to avoid making unnecessary copies of their data files. De-duplication is increasingly popular with businesses, as it can save them millions of dollars in storage costs.

In May, Data Domain agreed to be bought by NetApp of Sunnyvale, Calif., for $1.5 billion in cash and stock. The news surprised EMC executives, who’d also been interested in buying Data Domain. On June 1, EMC countered with an all-cash offer of $30 a share, worth $1.8 billion. NetApp later boosted its bid to $1.9 billion, and the Data Domain board voted unanimously to accept it.

But after EMC on Monday increased its offer to $33.50 per share, NetApp dropped out, and the Data Domain board unanimously accepted the EMC bid. For breaking its deal with NetApp, Data Domain has paid NetApp a termination fee of $57 million.

“Whenever you enter into an acquisition plan, there’s always a price you won’t go beyond,’’ said NetApp’s chief marketing officer, Jay Kidd. “EMC got above this price.’’

Kidd said that EMC’s aggressive pursuit of Data Domain was apparently driven by a desire to keep the company out of the hands of NetApp. “Given the price that they ended up paying,’’ he said, “we believe that there had to be an element of fear.’’

Babineau said EMC was indeed afraid of competing against Data Domain, because of its superior de-duplication technology. “I talked to many EMC sales representatives, and they did not like to compete against Data Domain,’’ he said, “because they knew there was a better than 50 percent chance they were going to lose.’’

EMC spokesman Michael Gallant said the deal would close before the end of July, and Data Domain’s operations will continue to be run out of California. Gallant also said EMC plans to make major investments in Data Domain’s technology and hire more workers for its de-duplication effort.

“This is a well-run company with highly complementary technology,’’ Gallant said. “We intend to invest in it and build on it.’’

Hiawatha Bray can be reached at bray@globe.com.