NetApp Bows Out, Clearing Way for EMC-Data Domain Nuptials

7/8/09Follow @wroush

Sunnyvale, CA-based NetApp (NASDAQ: NTAP) said today it would not try to top EMC’s $33.50 per share offer for Data Domain (NASDAQ: DDUP), clearing the way for the Hopkinton, MA-based storage and information management giant to acquire the much-sought-after provider of data deduplication software.

NetApp kicked off the competition for Data Domain on May 20 with a $25-per-share offer that Data Domain’s board quickly accepted. But then EMC came along, first offering $30 per share—a price NetApp matched—then $33.50.

In a statement today, NetApp said it couldn’t afford to keep upping its bid. “NetApp applies a disciplined approach to acquisitions, one focused intently on creating long-term value for our stockholders,” said NetApp chairman and CEO Dan Warmenhoven. “We therefore cannot justify engaging in an increasingly expensive and dilutive bidding war that would diminish the deal’s strategic and financial benefits.”

As a result of the termination of their merger agreement, Data Domain has paid its original suitor a $57 million break-up fee, NetApp said.

The $33.50-per-share bid from EMC (NYSE: EMC) came on July 6 and is worth about $2.1 billion overall. “This is a compelling acquisition from both a strategic and financial standpoint,” EMC CEO Joseph Tucci said in a statement. “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.”

In a July 6 letter to the Data Domain board, Tucci said EMC had already received approval from federal regulators to proceed with an acquisition of Data Domain, and that the transaction could be completed in as little as two weeks. EMC said today it expects to complete the acquisition “before the end of July.”

Deduplication software like that made by Data Domain reduces storage needs by eliminating redundant data before it’s sent to archival servers. EMC already offers deduplication as part of its Avamar family of backup software. But it’s a different kind of deduplication from that offered by Data Domain.

Avamar handles “source” deduplication, meaning that data is filtered out before it’s transmitted to a backup system, which saves bandwidth. But Data Domain offers “target” deduplication, meaning redundancies are identified at the backup location, ultimately saving more space.

EMC wants to offer its customers both forms of deduplication. In repeated missives to Data Domain’s board, EMC argued that target deduplication technology would find a broader market under EMC than under NetApp’s ownership. Now it will have the opportunity to test that theory.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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