EMC Plays M&A Hardball

EMC ( EMC) CEO Joe Tucci spent time playing semi-pro baseball as a young man and is clearly willing to play hardball in his dogged pursuit of Data Domain ( DDUP).

The Hopkinton, Mass.-based firm's battle with archrival NetApp ( NTAP) to buy Data Domain has become a bidding war.

As widely expected, Tucci and EMC upped the ante Monday, increasing their all-cash bid from $30 to $33.50 a share. If approved, the deal would be worth $2.1 billion to Data Domain shareholders, significantly more than previous offers from both EMC and NetApp.

Investors are now monitoring the situation to see whether NetApp will pony up yet more money, or concede defeat to its cash-rich foe.

Data Domain's board clinched a $1.9 billion cash and stock deal with NetApp last month, citing the good cultural fit between the two companies. This followed a $1.9 billion all-cash bid from EMC, which in turn surpassed NetApp's prior offer of $1.5 billion in cash and stock.

"If Data Domain pushes away EMC again, I think they will owe their shareholders an explanation for why they rejected an offer, that, on paper, was superior," said Charles King, principal analyst at technology research firm Pund-IT.

Undeterred by last month's Data Domain-NetApp deal, Tucci recently launched a charm offensive aimed at Data Domain's 800-plus employees, and is now putting his money where his mouth is.

Crucially, EMC is also proposing a whirlwind acquisition with no break-up fees. In a statement released Monday, the storage behemoth said that it could close the transaction in as little as two weeks, almost a month faster than NetApp.

Joe Tucci has earned a reputation for tenacity during his time at EMC and clearly relishes a challenge. The straight-talking Brooklynite has already overseen a string of big money EMC acquisitions, including a $2.1 billion deal for security specialist RSA, a $1.7 billion acquisition of Documentum, and a $1.3 billion merger with Legato. In this context, the $625 million spent by EMC to acquire virtualization giant VMware ( VMW) seems like small change.

At $2.1 billion, Data Domain is hardly cheap, but Pund-IT's King thinks that the deal would still be good value for EMC and its shareholders.

Data Domain, based in Santa Clara, Calif., is regarded as a trailblazer in data de-duplication technology, which ensures that the same pieces of information are not stored. By eliminating duplicate data, Data Domain and its rival Commvault ( CVLT) claim the solution to ever-growing data volumes.

"Data de-dupe's value is analogous to the value provided by server virtualization technologies like VMware," said King, adding that many business have hundreds of thousands of common storage files. "That takes up really serious real estate in the storage environment."

EMC already offers de-duplication in its Avamar product line, although King feels that Data Domain would bolster these capabilities, and even extend de-dupe beyond traditional enterprise storage.

"As the industry is moving to cloud-based storage, there's an opportunity for de-duplication to play in that space," he said, explaining that this could reduce the amount of data held in cloud services.

Whether Joe Tucci gets what he wants, however, depends very much on NetApp CEO Dan Warmenhoven. Like his counterpart, the former IBM ( IBM) executive is no shrinking violet and has also been known to shoot from the hip, such as his 2007 analyst day rant against rival Isilon ( ISLN).

Warmenhoven nonetheless struck a more circumspect tone in relation to EMC and Data Domain Monday. "In response to EMC's revised, unsolicited offer, the NetApp board of directors will carefully weigh its options, keeping in mind its fiduciary duty to its stockholders and its disciplined acquisition strategy," he said, in a statement. "We will provide an update shortly."

For the time being, though, the biggest beneficiary of this tug of love is Data Domain. The company's shares rose 85 cents, or 2.6%, to $34.06 Monday, despite a broader slump in tech stocks that saw the Nasdaq fall 0.5%. EMC's stock also climbed, albeit modestly, gaining 10 cents, or 0.8%, to reach $12.88. Shares of NetApp, however, slipped 15 cents, or 0.8%, to $18.81.

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