Size Still Matters

June 15, 2009

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Data Domain has formally rejected EMC’s $1.8 billion cash takeover bid in favor of a 1.9 $billion cash and stock deal it has signed with NetApp. EMC is expected to come back with a higher offer. It has a much bigger war chest than NetApp, and could stand to win the war for market share even if it loses the bidding battle.

In its rejection of the hostile EMC bid, Data Domain said EMC had not agreed to enter into standstill or confidentiality agreements required by its NetApp deal and that it believed EMC’s offer was less likely to close than NetApp’s. It also pointed to break-up fees with NetApp.

Sources told us on Friday that EMC plans to raise its bid before Data Doman shareholders vote on the matter. No date for such a vote has yet been set.

EMC could offer as much as $35 per share, sources say — $5 above its current offer. EMC’s strategy, according to one of the sources who has knowledge of its thinking, is to win Data Domain or drive the price so high that the acquisition weakens NetApp’s finances, Jim Finkle and Anupreeta Das report.

The view from the sidelines is that the only threat to EMC, which has $7.1 billion in cash, including $4 billion in the United States, is U.S. government intervention on anti-trust grounds.

It may never get that far. The government may be in charge, but cash is king, and some investors are already leaning toward EMC and its bigger cash payout.

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