EMC Trumps NetApp's Offer For Data Domain With $1.8 Billion Bid

EMC on Monday said it had made an offer to acquire Data Domain for $30 per share in a deal worth about $1.8 billion.

That is about 20 percent over the $1.5 billion offered for Data Domain last month by NetApp.

Data Domain is a pioneer in the development of data deduplication technology, and is by far the best-known vendor of the technology. The company manufacturers a series of storage appliances that tightly integrates its dedupe technology with dedicated storage capacity. It also offers software for data replication and virtual tape libraries.

Deduplication, also called "dedupe," removes duplicate information as data is stored, backed up or archived. It can be done at the file level, where duplicate files are replaced with a marker pointing to one copy of the file, or at the subfile or byte level, where duplicate bytes of data are removed and replaced by pointers, resulting in a significant decrease in storage capacity requirements.

Both EMC and NetApp currently offer data dedupe technology, which is why the fight between the two over Data Domain is so interesting, according to solution providers.

One solution provider, who asked to remain anonymous, said that EMC's offer to acquire Data Domain after trashing that company in its sales presentations will be an issue.

"EMC has been telling everyone in the market that its dedupe offering based on technology from Quantum is essentially the same as Data Domain's," the solution provider said. "So why would EMC offer $1.8 billion in cash for the same technology it already has? Either EMC has been making fraudulent statements or something else is happening."

For Keith Norbie, director of the storage division at Nexus Information Systems, a Minnetonka, Minn.-based solution provider and partner to EMC, NetApp and Data Domain, the offer is about two major players duking it out for a key storage technology.

"We just need to see who wants it bad enough," Norbie said.

The EMC offer is a lot of money, and it is hard to see why EMC is coming on so strong, especially with an all-cash offer, Norbie said.

NetApp could be considered a better fit for Data Domain, as it would be a case of a NAS company buying a NAS company, he said. Also, EMC already has at least two deduplication technologies, including its Avamar offering and technology from an OEM deal it has with Quantum, so it is hard to see how Data Domain might fit into its software stack, he said.

However, the price offered for Data Domain stems from the fact that it is known for making a superior deduplication technology, Norbie said.

"There are three major undercurrents being validated by these two big giants fighting over this relatively unknown company," he said. "The first two are brand ownership and market awareness, both of which are normally hard to get. The third is a technology leadership that no one else has been able to meet or beat."

There could even be a more cynical reason for EMC's offer, Norbie said. "Given the amount of money EMC has, one could argue EMC wants to buy Data Domain to kill it," he said.

However, Norbie also called Data Domain the "VMware of dedupe," referring to the leader in server virtualization, the majority of which is owned by EMC. "EMC may be thinking, 'Why not grab the leader?' " he said.

Data Domain has about as much significance to disk vendors as VMware has to server vendors, Norbie said. "The amount of storage capacity that will be hosted on products like Data Domain will grow exponentially over that of primary storage over the next few years," he said.

For that reason, Norbie said he would not be surprised to see Hewlett-Packard or Cisco Systems make an even higher offer for Data Domain. "If you think EMC has the adult position in terms of a cash offer, what about HP and Cisco?" he said. "They have much more cash."

EMC said it made the offer for Data Domain because of its fast-growing revenue base, its strong data-protection-focused management team and sales force, and its complementary storage software technology.

In a statement about its offer, EMC warned Data Domain that, because its offer is identical to the offer of NetApp in all aspects other than the increase in price, Data Domain's board of directors would risk breaching its fiduciary duties to its shareholders.

EMC also said that, to speed up the deal, it is waiving its right to review financial data from Data Domain, and that Data Domain does not need to enter into discussions or negotiations with EMC or sign any confidentiality agreements with EMC.

If the acquisition is concluded, EMC said it will maintain Data Domain's senior management team under the leadership of Frank Slootman, president and CEO of Data Domain, and operate Data Domain as a product division within EMC.

EMC on Monday also released the full text of a letter signed by Joe Tucci, EMC's chairman, president and CEO, to Slootman.

In the letter, Tucci wrote that EMC is impressed with Data Domain's business and team, but disappointed that EMC was not given an opportunity to explore a combination before NetApp's offer was announced, "particularly since I believe you should have been aware of our interest."

Tucci also noted in his letter that the EMC offer would go through much quicker than the NetApp offer because EMC is offering an all-cash deal and because EMC's bid is structured as a tender offer.

The customer use cases for the data dedupe technologies of EMC and Data Domain are generally distinct, Tucci wrote.

"The combination of Data Domain's leading target-based deduplication technologies and EMC's leading source-based deduplication technologies will allow the combined company to address the broad range of customers' data protection needs in a unified and complementary way. The marketplace for storage software solutions is complex, dynamic and highly competitive. Having superior deduplication technology solutions that combine the strengths of Data Domain and EMC in this storage software marketplace will help customers better achieve their needs as the market continues to evolve," he wrote.

Finally, Tucci noted that EMC has a long track record of making acquisitions work. "Because of our considerable experience, I am confident that we can successfully integrate our companies, retain the talented employees of Data Domain and realize the full potential of this combination," he wrote.

EMC and NetApp declined to comment on the Data Domain acquisition.