Quattrone brings “emo” back in dealmaking

rtripsrThe 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.

The banker said Data Domain’s deal to sell to NetApp smacks of the kind of “insider-y, clubby” deal Quattrone is known for — where two companies agree to merge because they like each other. As the FT story says:

The deal has raised questions about how effectively Data Domain, advised by Mr Quattrone’s Qatalyst Partners, has handled the process, in particular its acceptance of an initial, relatively low, offer and its advice to shareholders this week to reject one of the nearly matching bids on the table.

Size Still Matters

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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.

An offer Data Domain can’t refuse

rtr1wratWho 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.