EMC forced to extend Data Domain offer
Barely any takers so far
EMC has lengthened the offer period for its $30/share bid for Data Domain by 11 days, after attracting a derisory level of acceptance for the bid. It says this is to provide "additional time to satisfy closing conditions".
EMC chairman and CEO Joe Tucci referred to the Federal Trade Commission's regulatory review of the bid in his statement: "We continue to anticipate a routine review by the FTC resulting in a timely regulatory approval."
The FTC is looking at the danger that a successful EMC takeover of Data Domain could put too much deduplication business in EMC's hands.
A competing $30/share, part-stock, part-cash bid from NetApp has been agreed by the Data Domain board.
So far just 0.28 per cent of Data Domain's shares, 174,645, have been committed to the EMC bid. The shares are priced at $33.13 on the open market and have been above the $30 point since June 2, showing that the market as a whole expects a higher bid. It is thought that this could come from EMC, since its present bid has been rejected by the Data Domain board and because it has greater cash resources than NetApp.
EMC has previously made an overwhelming bid for a company which had rejected a previous bid in favour of an accepted offer from another company. That was for Iomega which now sits comfortably in the EMC stable.
There are two class action lawsuits in existence, which argue that Data Domain's board has not done all it could to maximise the value of the company, as they argue it should, in the acquisition process, by favouring NetApp.
The ball is in EMC's court as NetApp has acceptance for its bid. With the tender offer extension in its pocket, it looks as if EMC could make a new bid next week, and then it will be decision time for NetApp. Does it raise its bid or not?
The omens for NetApp are not good - what EMC wants, EMC tends to get. ®
Do the sums make sense?
Why is it that even a technical site keeps presenting this as a Pi**ing contest. If you want to base this on financial might, maybe a few sums might help. I am not any sort of an analyst, but a little digging brought me to these conclusions.
Netapp bought 28% of Data Domain around $25 when they made the deal. Make the effort and check the trades and SEC submissions.
If NetApp win now they pay $30 in shares and stock for the remaining 72%
This gives an average cost of purchase around $29
If EMC wins they give NetApp $57M and a profit on those 28% shares - approximately a total win of $150M. They also get control of a company under hostile conditions which they have to seriously work on to recoup their investment - or it will devalue rapidly.
If EMC raises their bid NetApp can walk away with a larger profit. if NetApp matches at say $33 then NetApp's average cost is still below $30.
Despite all the bluster - and I believe the financial markets have been desperately hoping EMC will be foolish enough to keep bidding - The current price for Data Domain means whoever buys it needs to work very hard to profit from the deal,
EMC has achieved it's primary objective of ensuring NetApp does not slip away with Data Domain on the cheap. EMC however was not prepared for Data Domain's strong rubbishing of their offer, or NetApp's smart move in covering their purchase by buying the critcal 28% of Data Domain on the open market. Problem EMC now has is Brand and reputation damage, but they are still finacially astute, and can keep presuring in the market.
I would recomend all shareholders who wish to maximise their short term profit to exit in the overpriced $33 market now before it becomes clear that the dogs are not going to enter a unprofitable and damaging (Mutually Assured Destruction) fight which would make either a soft takeover target.