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EMC Turns Spoiler; Outbids NetApp

The NetApp-Data Domain alliance is the second time EMC has been surprised lately

EMC is proposing to outbid NetApp for Data Domain, the dedupe house that NetApp agreed to buy the week before last for $25 a share in cash and stock, a price valued at $1.5 billion.

EMC is offering $30 a share, all cash, a total of $1.8 billion, more than it’s ever paid for anything. And it’s not waiting on ceremony it’s starting a tender offer.

The NetApp-Data Domain alliance is the second time EMC has been surprised lately.

David Donatelli, the president of its storage unit, where the bulk of ~$15 billion in revenues lives, surprised EMC when he up and resigned a few weeks ago and moved to HP, proposing to run both its storage and servers, a move that forced EMC to go to court to enforce Donatelli’s non-compete. A court decided he can work for HP he just can’t run storage for the next year.

EMC CEO Joe Tucci (pictured) said on a conference call Monday evening that EMC has been eyeing Data Domain for a while. NetApp just beat it to the punch. In a letter to Data Domain CEO Frank Slootman that was made public, Tucci grumbled about not being given a shot.

“We are disappointed,” he said, “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.”

One can only assume then that Data Domain didn’t want to go to EMC – and it’s got a lot of EMC alums on its management staff.

Believing its played the trump card EMC sent Data Domain a definite agreement substantially like NetApp’s – in other words just like the one the Data Domain board already signed except for the better price and faster merger that returns the money to Data Domain’s shareholders quicker. It’s now waiting for Data Domain to blink.

Tucci told Slootman he’s not interested in any discussions or negotiations or confidentiality agreements and he told the Data Domain board that “failure to change its recommendation is reasonably likely to be a breach of its fiduciary duties.”

Tucci & Co figure the only thing NetApp can do is come back with a better offer. They also apparently reason that a quick acquisition would stop anybody else from horning in.

EMC argues that its offer, a 20% premium over NetApp’s and in cash, is obviously superior to NetApp’s and claims that with its global sales force it’ll be able to advance Data Domain’s fortunes a lot faster than its smaller rival.

It won’t need any financing and isn’t bothering with any due diligence and proposes to run Data Domain as product division within EMC with its existing senior management in place. At least that’s what it says.

Acquiring Data Domain is supposed to strengthen EMC’s position in disk-based backup and archiving, and give it a business worth more than a billion dollars in 2010. It figures the transaction will be accretive to its 2010 non-GAAP EPS.

EMC says it already has the source end of deduplication covered with its own Avamar products and the technology it OEMs from Quantum good for, oh, say, virtualization. Data Domain would give it the target or application side good for stuff like SAP, Exchange and SQL.

Funny, EMC never made such nice distinctions before.

Tucci claims an EMC acquisition is “a far more compelling alternative to [Data Domain’s] customers, employees and partners.”

He said the combined technologies will provide a basis for tape- replacing next-generation disk-based back-up and archiving good for both private and public clouds.

Data Domain is supposed to do ~$480 million next year. EMC will be paying 60 times earnings and five times revenues.

The termination fee Data Domain would own NetApp is $57 million.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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