EMC on Monday increased its bid for Data Domain to $33.50 a share from $30 a share to $2.1 billion after NetApp's acquisition plan received regulatory clearance. NetApp said Monday that Data Domain shareholders will vote on its $1.9 billion bid Aug. 14.
Data Domain has rejected EMC before, but money talks. EMC's new $2.1 billion bid trumps NetApp's $1.9 billion offer and will give shareholders something to think about all things being equal. In addition, Caris & Co. analyst Robert Cihra reckons that EMC (quote) could up the ante for Data Domain (DDUP) repeatedly. NetApp's (quote) offer, however, would likely top out at $35 a share. Cihra writes:
Figuring no insurmountable obstacles from ongoing FTC review, we believe currently low cost/returns on cash (~2%) could enable EMC to raise its all-cash bid for DDUP to as high as $40/share and still keep the deal neutral to CY10E non-GAAP EPS (our $0.98 est) w/out even requiring revs/cost synergies. As such, we continue to expect EMC ultimately out-bids NTAP. Indeed, we see the only hurdles to EMC conceivably going much higher being the sustainability of today’s low interest rates and a hit to GAAP EPS from intangibles amortization that starts to get unwieldy (e.g., we est $0.03 already at today’s $30 bid and $0.04 at $40). This said, we est just $50mm in added revenue and $20mm opex savings could actually make DDUP accretive by up to +0.03 in non-GAAP EPS for CY2010 even if EMC upped its bid to $40. In contrast, we estimate NTAP could likely only justify raising its own bid for DDUP to ~$35 AND require more than $80mm in pre-tax revenue/cost synergies if it hoped to keep the deal non-GAAP EPS neutral for FY11.
NetApp CEO Dan Warmenhoven responded to EMC's move:
"In response to EMC's revised, unsolicited offer, the NetApp Board of Directors will carefully weigh its options, keeping in mind both its fiduciary duty to its stockholders and its disciplined acquisition strategy. We will provide an update shortly."
EMC, which extended its tender offer to midnight July 17, also said there are no regulatory hurdles from the Federal Trade Commission over a Data Domain purchase. EMC also removed a break up fee. The storage giant also said it can close a Data Domain deal in two weeks.
For EMC its offer seems to be one of the last appeals to Data Domain shareholders. NetApp also received early clearance from the FTC and said it was looking forward to a quick close on its Data Domain acquisition.