A dramatic bidding war for a little-known Santa Clara company ended Wednesday, as Data Domain announced it has agreed to be acquired by storage giant EMC for roughly $2.1 billion in cash.
Rival suitor NetApp withdrew from the contest, announcing that it had accepted a $57 million breakup fee for terminating an earlier merger agreement, which called for it to buy Data Domain for roughly $1.9 billion in cash and stock.
Data Domain makes “de-duplication” systems that help customers lower their data storage costs by eliminating redundant files as information is archived and backed up, so customers don’t need to buy as much disk capacity.
The company’s technology has become increasingly valuable: As more information is stored digitally, businesses are eager for ways to stave off rising costs. Data Domain reported $274 million in sales last year, doubling its revenue from 2007.
Sunnyvale-based NetApp and EMC of Massachusetts both sell data storage systems, and analysts say each hoped to gain a competitive edge by offering Data Domain’s technology to its customers.
But a NetApp executive downplayed the outcome Wednesday, saying his company will continue to develop its own technology as it considers other acquisitions. Chief Marketing Officer Jay Kidd also took the opportunity to trash-talk a larger rival: “Given the price they’re paying, there must be a healthy amount of fear inside EMC,” he said. “We’re flattered by that.”
NetApp first ignited the bidding war in May, when it offered Data Domain $25 a share, or roughly $1.5 billion. EMC then offered $30 a share in cash, prompting NetApp to raise its offer to $30 in cash and stock.
Data Domain’s board had agreed to NetApp’s offer. But when EMC raised its bid Monday to an all-cash tender offer of $33.50 a share, analysts predicted the price would be too rich for NetApp.
EMC, with annual sales of almost $15 billion, is estimated to have cash reserves of more than $7 billion. NetApp has annual revenue of $3.4 billion and an estimated $2.7 billion in reserves.
Data Domain’s stock, which had been trading below $18 before NetApp made its first offer, rose as high as $34.24 this week and closed Wednesday at $33.90.
NetApp formally withdrew its last offer after trading closed Wednesday. Data Domain then announced that its board had accepted EMC’s terms as serving the best interests of Data Domain and its shareholders.
In a statement, NetApp CEO Dan Warmenhoven said the acquisition would have been good for his company but added that he couldn’t justify “engaging in an increasingly expensive and dilutive bidding war that would diminish the deal’s strategic and financial benefits.”
His counterpart at EMC, Joe Tucci, called the deal “a compelling acquisition from both a strategic and financial standpoint.” In a statement, Tucci added, “We look forward to bringing Data Domain together with EMC to form a powerful force in next-generation disk-based backup and archive.”
Contact Brandon Bailey at 408-920-5022.
