DealZone

‘Tis the season for unbridgeable gaps.

NRG Energy rejected Exelon’s sweetened (and hostile) bid on Wednesday, saying the $6.9 billion offer was still too low.   

Exelon raised its all-stock offer for NRG by more than 12 percent last week, but investors have not been swayed by the increased price. NRG shares have lost more than 15 percent of their value since Exelon bumped up its bid.   

Exelon has said its increased bid of 0.545 of its shares for every NRG share is its best and final offer. 
Still, NRG called the revised Exelon bid a step in the right direction.  “If you would properly recognize the value created by NRG itself, you would be able to increase your current 0.545 offer by a substantial amount,” NRG wrote in its letter.   

Next stop on this long road: NRG’s annual meeting on July 21. Exelon has nominated a slate of directors to stand for election; shareholders will vote.

The two companies are part of a long list of running hostiles, including Broadcom/Emulex, Agirum/CF/Terra, Xstrata/Anglo American, Validus/IPC and EMC/Data Domain. Some of those offers are “unsolicited” and not “hostile” yet. But let’s face it — a bid that is unsolicited and perceived to be undervalued might not be “hostile,” but it isn’t considered particularly friendly.

EMC on Monday increased its offer for Data Domain by 12 percent to $33.50 a share, valuing the specialty storage maker at $2.4 billion and raising stakes in a bidding war against rival NetApp.

EMC also removed a breakup fee from its offer for Data Domain and said it was ready to complete a deal within two weeks.

The battle for Data Domain, which began with an offer of $25 a share from NetApp,  has grown increasingly acrimonious. Last month, EMC took out a full-page ad in The San Jose Mercury News explaining to Data Domain’s employees why a deal with EMC is better than one with NetApp.

The Financial Times’ Richard Waters does a profile of Frank Quattrone in Thursday’s paper, pegging the return of Silicon Valley’s “most prominent banker” to the ongoing Data Domain-EMC-NetApp saga. Quattrone’s firm Qatalyst Partners is the sole adviser to Data Domain, the specialty storage technology company that is the target of competing bids from East Coast storage giant EMC, and its smaller Valley rival, NetApp.

Now, EMC’s Chief Executive Joe Tucci has not hesitated to publicly spell out why his company is playing spoiler in the NetApp-Data Domain deal. When EMC announced its $30-a-share, all-cash bid on June 1 — gatecrashing a cozy agreement where NetApp agreed to buy Data Domain for $25 a share, or about $1.5 billion — Tucci said he was surprised that Data Domain didn’t give his company the chance to bid before announcing the deal. “Particularly since I believe you should have been aware of our interest,” Tucci said, which as Reuters reported a few days later, meant that EMC had talked to Data Domain several times about business combinations, including an acquisition.

So why did Data Domain not run the usual process that a company wanting to sell itself follows? Typically, a company will use its bankers, board members and other top executives to discreetly spread the word. Word has it has Sun Microsystems’ bankers began sending feelers out in the fall of 2008, months before any real negotiations with IBM, Oracle and HP happened. Companies usually run this informal process to solicit expressions of interest so that all potential buyers have a chance to participate before a deal is finalized and announced publicly. Also, they want to avoid “public food fights,” as one tech banker I spoke to described it — nasty EMC-style aggression initiated by potential buyers who feel they were left out.

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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.

Who knew EMC was a gatecrasher? Two weeks after NetApp announced plans to acquire Data Domain for $1.5 billion, the storage giant barged in with a higher offer and spoiled NetApp’s party.

EMC has always coveted Data Domain, which makes technology that removes redundant data as it is backed up, saving companies costly storage space. EMC CEO Joe Tucci said as much yesterday, complaining that Data Domain didn’t even give EMC a chance to bid for the assets before tying up with NetApp.

Hence, the aggressive move, supported by the $30 a share, all-cash offer that analysts say Data Domain would find tough to refuse.