By Nathan Statz
The bidding war over Data Domain has ended, with EMC coming up trumps and NetApp getting a large cheque for the trouble
The fight for the right to purchase Data Domain has come to a conclusion, with EMC’s all-cash offer of US $2.1 billion edging out rival NetApp.
EMC has come up trumps in its tussle with NetApp over which storage vendor would win the price-war for Data Domain. Despite losing the battle to acquire the data de-duplication company, NetApp has been paid a $57 million termination fee by Data Domain for walking out on the original acquisition agreement.
The saga has been raging since May, when NetApp announced that it would be acquiring Data Domain for $25 per share, which worked out to have an approximate value of $1.5 billion. EMC then threw its hat into the ring on the 1st of June, with a hostile bid of $30 per share, placing an approximate value of $1.8 billion on the counter-offer.
Joe Tucci, chairman, president and CEO of EMC claimed that the Massachusetts-based storage goliath’s all-cash proposal was substantially superior and would be a win-win for both companies.
“We are disappointed that we were not given an opportunity to explore a business combination prior to the announcement of your proposed transaction with NetApp, particularly since I believe you should have been aware of our interest,” Tucci wrote in a letter to Frank Slootman, president and CEO of Data Domain that was released to the media.
Tucci’s letter outlined the proposal being put forth to Slootman and the board of directors of Data Domain, and also mentioned that senior management would be retained and the company would be operated as a product division under EMC.
Two days later, NetApp hit back with an announcement that it had entered into a revised agreement with Data Domain to acquire the company for $30 per share, which the California-based giant claimed put the value of the new offer at approximately $1.9 billion in cash and shares.
“We are pleased with the revised terms of NetApp’s acquisition offer and feel it will provide great value to our shareholders and customers,” said Data Domain’s Slootman on July 3rd.
Slootman and the board of Data Domain recommended that shareholders vote to reject the EMC bid and choose to stick to the original agreement with NetApp.
“Our board is committed to enhancing stockholder value and, after careful review with our outside advisors, determined that the $30 per share EMC offer is not in the best interests of our stockholders at this time,” said Slootman on June 15.
The counter proposal from EMC originally had an expiry date of June 29th, which was then extended to July 10th.
“EMC’s $30 per share all-cash offer remains superior to NetApp’s stock and cash offer and, very importantly, delivers to Data Domain stockholders the price certainty and price protection its management team and board stated as important priorities during their negotiations with NetApp,” claimed EMC’s Tucci on June 26th.
Four days before the new deadline, EMC revised its offer once again by increasing the money on the table to $33.50 per share, putting the total approximate value at $2.1 billion. Tucci this time wrote a letter to Aneel Bhusri, chairman of the board at Data Domain, outlining the new deal and stressing the importance of EMC's willingness to eliminate all deal protection provisions.
Deal protection had emerged as a controversial issue in the salvos being lobbed back-and-forth by the two potential suitors, as details emerged of a $57 million termination fee that Data Domain would have to pay NetApp if it backed out of their agreement.
"Data Domain does not have any justification for continuing deal protection provisions for NetApp or any other party given our willingness to proceed without them. It was questionable agreeing to deal protections in your initial agreement with NetApp, when you knew of our interest in acquiring the company. There is no basis for continuing with them now," Tucci wrote in his letter to Data Domain's Bhusri on July 6th.
EMC’s revised bid was enough to put it over the top, with NetApp declining to up the ante once more and announcing that the merger agreement had been terminated.
“While NetApp’s acquisition of Data Domain would have produced benefits for customers and employees and complemented NetApp’s existing growth trajectory, we remain highly confident in our already compelling strategic plan, market opportunities, and competitive strengths,” said Dan Warmenhoven, chairman and CEO of NetApp.
“NetApp applies a disciplined approach to acquisitions, one focused intently on creating long-term value for our stockholders. We therefore cannot justify engaging in an increasingly expensive and dilutive bidding war that would diminish the deal’s strategic and financial benefits," added Warmenhoven.
EMC’s offer was finally accepted by Data Domain, with the latter fulfilling its obligation to NetApp by writing a cheque for the full $57 million termination fee.
“This is a compelling acquisition from both a strategic and financial standpoint. We look forward to bringing Data Domain together with EMC to form a powerful force in next-generation disk-based backup and archive. I have tremendous respect for Data Domain’s people, technology and business, and anticipate great things ahead for our respective companies, our customers and partners,” said Tucci.
Well done EMC. You're a star !!!