EMC raises offer for Data Domain

EMC upped the ante in the battle for Data Domain on Monday, offering $2.4bn, or $33.50 a share, for the innovative data storage company that had agreed to be purchased by NetApp.

The bidding war, rare for the technology industry, reflects the perception that Data Domain’s technology will be especially important as the storage industry evolves.

EMC and NetApp have been trading bids for Data Domain since May, when NetApp announced it would buy the de-duplication company for $1.5bn in cash and stock. EMC responded with an all-cash offer of $1.8bn that analysts viewed as superior.

But last month the Data Domain board surprised Wall Street when it rejected EMC’s offer, saying it would prefer to be acquired by the nimbler NetApp which, like Data Domain, is based in Silicon Valley.

EMC is based in Massachusetts.

EMC, however, has always been seen as the likely victor in this bidding war. The giant of the storage industry has more than $6bn in net cash, compared to NetApp’s less than $2bn.

Data Domain shares rose on Monday, suggesting that Wall Street expected NetApp to respond with yet another bid. But some analysts said NetApp was fast approaching the limits of what it could spend.

“NetApp doesn’t have the cash on the balance sheet,” said Rajesh Ghai, an analyst with Think Equity. “It’s going to hit its limit in terms of how much cash it can use for this deal.”

Both EMC and NetApp’s desire to add Data Domain to their portfolio reflects the young company’s position as an emerging leader of the storage industry. Just eight years old, the company makes disc-based appliances designed to store data for large companies and governments for the long term.

Its most valuable technology identifies duplicate pieces of data and removes the excess copy before it is written on to the back-up disc, increasing the system’s efficiency.

Major Data Domain customers include AT&T and the US Army, which use the products to reduce storage costs. Revenue at Data Domain more than doubled last year to $274m. The company reported $79m in revenue during the first quarter of this year.

NetApp had said that an acquisition of Data Domain by EMC would hurt competition in the emerging de-duplication market, and said Monday that it would weigh its options before providing an update “shortly”.

EMC said Monday that it had won approval from the US Federal Trade Commission to pursue the deal.

In a letter to Aneel Bhursi, Data Domain chairman, EMC chief executive Joe Tucci said: “Since June 1st, when we submitted to you our prior proposal, we have received wholehearted support from many of your stockholders and customers.”