Data Domain Shares Up After EMC Raises Bid

EMC increased itsoffer for Data Domain by 12 percent, valuing thespecialty storage maker at $2.4 billion and raising the stakes in a bidding war against rival NetApp.

The move drove Data Domain shares up 2.7 percent to $34.24 in morning trade on Monday, above EMC's new $33.50-per-sharebid, suggesting that investors expect NetApp to respond with higher offer.

"If you own stock, you hold on to it whenever you have two guys fighting," said Tom Burnett, who follows mergers and acquisitions as director of research for Wall Street Access.

He said EMC is in a stronger position in the rare bidding war in the technology sector because the world's top storage company has a stronger balance sheet. EMC could offer as much as $34 to $35 per share for Data Domain, people familiar with its strategy told Reuters last month.

Data Domain's board had previously said that NetApp's $30-per-share, cash-and-stock offer was superior to EMC's all-cash $30-per-share offer. EMC's raised bid will force directors to reconsider that decision.

Spokesmen for Data Domain and NetApp declined comment on EMC's revised bid. Both EMC and NetApp said on Monday that they have won approval from U.S. antitrust regulators last week to pursue their bids for Data Domain, a maker of data-reduction software, whose sales are growing faster then either bidder.

Investors were concerned the U.S. Federal Trade Commission would delay approval for EMC's proposal since it is already the world's biggest storage company. That would have given NetApp's offer an advantage with shareholders who want the deal to close quickly so they can sell their stock.

EMC said it would pay $2.39 billion to Data Domain shareholders, based on the 71.2 million diluted shares outstanding in Data Domain's most-recent public filing with the U.S. Securities and Exchange Commission.

The deal has an enterprise value of $2.1 billion after subtracting the $277.8 million in cash on Data Domain's balance sheet, EMC said. EMC had placed the enterprise value of its previous $30-per-share offer at $1.8 billion.

Even if NetApp matches EMC's new price, investors may prefer the cash bid, Wall Street Access' Burnett said.

"The market looks a little shaky now. In those kinds of environments, cash bids will win once the final terms have been decided," he said.

EMC Chief Joseph Tucci sweetened his proposal further by removing the break-up fee and other deal protections in the revised offer, which he presented in a letter to Data Domain Chairman Aneel Bhusri on Monday.

Tucci said that he could close the purchase of the companyin as little as two weeks.

"Since June 1st, when we submitted to you our prior proposal, we have received wholehearted support from many of your stockholders and customers," Tucci said in the letter.

Data reduction technology helps boost the efficiency of storage equipment by hunting out and deleting duplicate pieces of information.

EMC already is the largest player in the market for data-reduction technology, though it accounts for a relatively small portion of the company's sales. While NetApp offers such features, they generate little revenue because the company bundles them with existing storage products.

EMC pulled in about $90 million worth of sales from data reduction technology in its most recent quarter and it estimates that annual revenue from that business would quickly soar to $1 billion if it acquires Data Domain. That would consolidate its leadership in a market that industry researcher Gartner projects is worth about $3 billion a year. EMC said the market is worth $10 billion.

The No. 2 provider of the technology is Data Domain, whose sales totaled $80 million in its most recent-quarter.

The rest of the market is shared by companies whose sales pale by comparison. They include Symantec, International Business Machines Corp and Quantum, which has a partnership with EMC.

EMC shares fell 0.3 percent to $12.75, while NetApp shares rose 0.2 percent to $18.99.

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