Data Domain bid war: Could NetApp go higher?
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Comment Could NetApp go higher than its $1.9bn Data Domain bid if EMC raises its offer?
Stifel Nicolaus analyst Aaron Rakers writes in an investor briefing today: "Our conversations with Dan Warmenhoven, NetApp's CEO, last week would not discount that other potential bidders could surface – though we admittedly did not expect EMC to be one of them given their exiting Quantum-based solutions [note: EMC announced a financing commitment with Quantum totaling $100 million a few months ago].
"While we believe this suggested that NetApp was very much anticipating the potential for another bid and would likely therefore take a constructive approach to potentially raising its original offer, we believe EMC's all-cash offer, and likely further room to increase their offer, put NetApp in a tough position in terms of a counter-offer.
"The new $16.45 cash portion of the offer from NetApp implies approximately an additional $300 million cash outlay from the company compared to its original offer. NetApp exited its most recent quarter with a total cash position of $2.604bn, or $1.174bn on a net cash basis. It is also important to remember that NetApp has 52 percent of its total cash and investments tied up internationally [i.e., unable to tap unless paying a hefty tax].
"This compares to EMC exiting (the first quarter of this year) with approximately $9.785bn in total cash and investments, or approximately $3.885bn excluding VMware at $2.031bn and approximately $3.869bn tied up internationally [note: EMC can tap a $450m payment due from VMware]. We ultimately believe that EMC's cash position will allow them to make an increased offer above the current $30 per share offer in order to acquire Data Domain."
Suppose EMC rebids at $2.1bn. Were NetApp to raise its bid to $2.3bn, then finding the cash to do that could mean it has to bring cash into the USA from overseas and incur a tax liability, making the effective cash committment higher.
Data Domain shares are currently trading at $32.54, suggesting that investors in general think a higher bid is coming in what is turning into a high stakes poker game. ®
COMMENTS
Tax liability a good thing?
Hmmm, if NetApp brings cash into the States, they pay taxes on it. More money into the economy, more money for the government to spend trying to kickstart the economy. Sounds win-win to me!
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