As expected, EMC has increased their bid for Data Domain and is now offering $33.50 per share in cash. Data Domain has been ignoring EMC in favor of their preferred suitor, NetApp; however, with the recent increase, Data Domain has no choice but to consider the EMC offer.
This situation leaves NetApp in a tough spot. James Bond describes the situation perfectly in the movie, For Your Eyes Only,
“I’m afraid we’re being out-horse-powered!”
NetApp wants to acquire Data Domain (and the feeling is mutual), but they are being out-horse-powered by EMC. NetApp does not have the financial strength to go head-to-head with EMC’s increasingly aggressive all-cash offers. NetApp must be evaluating how badly they want Data Domain and at what cost.
NetApp appears to be positioning themselves for an exit. In this release they indicate that they are committed “… to a Disciplined Acquisition Strategy” – suggesting that if the bidding becomes “undisciplined” (e.g. too high of a price) that they will back out. I would suggest that EMC’s offer of $33.50 would meet the definition of “undisciplined” and will result in NetApp backing out.
Assuming EMC acquires Data Domain, we are left with some interesting questions regarding NetApp and Quantum.
I am curious to see where NetApp goes next. We will see if NetApp wants to acquire deduplication technology or if they just wanted Data Domain. In the former scenario, they will pursue other dedupe vendors.
Their plan B could be to pursue a backup software company like CommVault (CVLT). CommVault provides a suite of backup products that compete with NetBackup, ITSM, Data Protector and others. Although this would give NetApp an entry into the backup space, it would require them to battle with the major backup software ISVs. They may face a difficult sales process because CVLT must convince end users to replace their backup software – a potentially costly proposition when you factor in human capital and the end user’s sunk costs. In my opinion, this sales challenge is different and more specialized than selling filers and not an ideal fit with NetApp’s sales model.
If EMC buys Quantum, it will put them in a tough spot. EMC will eventually dump them in favor of Data Domain and Dell will likely follow suit. This leaves Quantum without a major OEM partner. It will be interesting to see if EMC requests their $100 million loan back.