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Data Domain, EMC’s deal that nearly got away: Eric Auchard

July 10, 2009

 – Eric Auchard is a Reuters columnist. The opinions expressed are his own –
By Eric Auchard

LONDON, July 10 (Reuters) – The quickest way to attract a marriage proposal is to draw the attentions of a rival suitor.

When Data Domain <DDUP.O> agreed terms with fellow data storage company Network Appliance <NTAP.O> it concentrated minds at EMC <EMC.N>.

The upshot is that EMC is now paying an eye-watering six times sales for Data Domain, one-third more than NetApp first proposed to pay.

EMC could not bear to simply stand and watch. Data Domain has technology that threatens EMC’s business model. Its products reduce demand for existing data storage hardware by as much as 20 times.

The winning bid is nearly double Data’s price before the Network deal emerged six weeks ago. It has emerged that EMC had talked to Data but never made a formal offer. This now looks distinctly careless.

It’s clear that EMC could have won Data Domain for significantly less, and a glance at the technology shows how badly it needed the purchase. EMC may be the market leader in data storage. But its software and operating system is the key to its success, and Data’s products make existing systems much more efficient.

The acquisition of Data Domain is another step in the reinvention of EMC under Chief Executive Joe Tucci, from a seller of storage hardware into a provider of the software and services to run it.

His string of mergers dating from 2003 kicked off the eventual consolidation of the business software industry. He has a reputation for buying cheaply in tough market conditions. Data Domain is not Tucci’s biggest deal, but perhaps it’s not the best executed one, either.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. Read some of Eric’s recent columns here –

 (Editing by Martin Langfield; Photo: Joshua Roberts, Reuters)

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