Data Domain's board of directors is recommending that its shareholders reject EMC's $30 a share in cash bid. The company has already approved an acquisition by NetApp for $1.9 billion.
Data Domain on Monday said it reached its decision based on the following (statement):
- NetApp's offer "represents a binding, negotiated commitment of both Data Domain and NetApp."
- Data Domain can't negotiate the terms of EMC's offer. The company said:
Data Domain has been unable to engage in discussions or negotiations with EMC with respect to its offer because EMC has not yet agreed to enter into the form of confidentiality and "standstill" agreement required by the merger agreement with NetApp as one of the pre-conditions to any discussions or negotiations with a third party.
- EMC can terminate its offer anytime before the June 29 tender offer for Data Domain shares. In other words, Data Domain could drop the NetApp bid and be left out in the cold.
- Data Domain would have to pay NetApp a $57 million termination fee if it went with EMC.
What's unclear is whether shareholders buy that rationale. The Wall Street Journal made a big deal of the culture clash between Silicon Valley and east coast companies like EMC, but in the end there's an all cash bid vs. a stock and cash bid. If shareholders decide cash is king EMC can still make some noise. Who cares about culture when there's cash on the line?
EMC's response to Data Domain's move was predictable. EMC CEO Joe Tucci said in a statement:
We believe that EMC's $30 all-cash offer is superior and delivers to Data Domain price certainty and price protection as well as the ability to close promptly. We note that, as indicated in NetApp's June 3rd Form S-4 filing, Data Domain communicated to NetApp that 'price certainty and protection against fluctuations [in] NetApp's common stock were important to Data Domain.' We also note that on several occasions, Data Domain requested NetApp to increase the cash portion of its offer as well as the range of the collar. EMC's all-cash offer meets all of Data Domain's stated objectives. We do not believe that Data Domain stockholders will approve the proposed transaction with NetApp. EMC remains committed to successfully completing this transaction.
The wild card here is the stock market, which is rolling over today. The more volatile---especially to the downside---the market becomes the more appealing EMC's all cash bid will look.
The EMC-NetApp-Data Domain merger triangle:
- EMC CEO Tucci pens dear Data Domain workers letter
- NetApp, Data Domain ink revised deal; EMC says bid still superior
- NetApp ups ante for Data Domain; Not giving into EMC easily
- EMC spars with NetApp over Data Domain
- NetApp buys Data Domain for $1.5 billion