Data Domain shares soar as bidding war opens

NEW YORK - Investors bet that a higher offer is coming in the bidding war for Data Domain Inc., sending shares of the data storage company soaring Tuesday.

NetApp Inc., a Sunnyvale, Calif., company, offered $25 per share in cash and stock for Digital Domain on May 20, pegging the total value of the deal at $1.5 billion. Hopkinton, Mass.-based EMC Corp. stepped in Monday with an all-cash offer of $30 per share, or $1.8 billion.

On Tuesday, Data Domain's stock ran up $5.05, or 19 percent, to $31.40 in midday trading. That's up 75 percent from the company's closing price the day of the original bid.

"Will (NetApp) counteroffer?" Lazard Capital Markets analyst Ryan Hutchinson said in a client note Tuesday. "Maybe."

Hutchinson, who reiterated a "Hold" rating on NetApp shares, said both companies recognize the "billion dollar-plus opportunity" in acquiring Data Domain's assets.

He said EMC's move "is likely as defensive as it is offensive," as the company looks to head off a "potential loss of market share from cross-selling opportunities that would likely arise" in a deal between Data Domain and NetApp.

"Accordingly, we believe both parties could be willing to go higher," Hutchinson added.

Kaushik Roy, an analyst with Wedbush Morgan, raised the possibility of other possible suitors, including computer makers Dell Inc. and Hewlett-Packard Co.

"We believe EMC's proposal to buy Data Domain is the right offensive move to keep Data Domain" out of other hands, Roy said. He reiterated a "Buy" rating on EMC.

EMC shares rose 14 cents to $12.56 in midday trading while NetApp shares tumbled $1.15, or 5.6 percent, to $19.54.

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