EMC Corp. raised the stakes in its bidding war for data deduplication backup specialist Data Domain Inc. today, increasing its all cash offer to $33.50 per share or $2.1 billion in an attempt to sway the Data Domain board from accepting NetApp's offer of $1.9 billion.
"In comparison to your proposed transaction with NetApp, EMC's proposal represents a far superior alternative for your stockholders," EMC chairman Joe Tucci wrote in his offer letter to Data Domain chairman Aneel Bhusri.
The new EMC offer will expire July 17.
On June 15, Data Domain's board recommended that its shareholders reject EMC's initial offer in favor of NetApp's amended proposal. Data Domain's management team has made it clear they prefer to be acquired by NetApp instead of EMC, but the stockholders will ultimately decide.
NetApp chairman Dan Warmenhoven released a statement saying NetApp's board will "carefully weigh its options, keeping in mind both its fiduciary duty to its stockholders and its disciplined acquisition strategy. We will provide an update shortly." Financial analysts have pointed out that NetApp has less cash than EMC to use for an acquisition.
In a note to clients today, analyst Aaron Rakers at Stifel Nicolaus Equity Research said EMC's offer "forces NetApp to chase an acquisition that looks increasingly expensive, especially when considering the company's net-cash position of $1.2 billion and 52% of its cash tied up internationally, or NetApp loses an acquisition to EMC that appears to favorably fit strategically within its overall business model …"
NetApp today said it has received clearance from the U.S. Securities and Exchange Commission (SEC) and Federal Trade Commission (FTC) to proceed with the deal, and Data Domain's board has called an Aug. 14 meeting to vote on its latest offer. EMC today also said the FTC has given it permission to proceed with a purchase of Data Domain.
Tucci's letter to Bhusri said EMC's offer is worth more for Data Domain's shares, provides "greater certainty of value" because it's all cash and EMC can close the deal within two weeks – nearly a month before NetApp's scheduled close.
EMC said its proposal isn't subject to any financing, due diligence or regulatory contingency because it will use existing cash balances to finance the deal.
Data Domain must pay NetApp a $57 million breakup fee if that deal falls through. EMC's new offer removed its $57 million breakup fee, as well as a no-solicitation clause that prevents Data Domain from negotiating with other suitors. NetApp's proposal to Data Domain also includes a no solictation clause, which prompted EMC to make its bid directly to Data Domain investors..
"This last point is very significant to you and your stockholders," Tucci wrote to Bhusri of the deal protection provisions, and called on Data Domain to eliminate all such provisions from the NetApp proposal.
"Data Domain does not have any justification for continuing deal protection provisions for NetApp or any other party given our willingness to proceed without them," Tucci wrote. "It was questionable agreeing to deal protections in your initial agreement with NetApp, when you knew of our interest in acquiring the company. There is no basis for continuing with them now."