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In a soap opera that rivals that of Fleetwood Mac's Stevie Nicks and Lindsey Buckingham, Data Domain's deduplication expertise attracted two handsome suitors. Storage giant EMC is the bigger and richer of the two, while smaller rival NetApp wanted to springboard off this merger to perhaps grow to EMC's stature in the next few years.
After a month of dueling press releases and SEC filings, NetApp has thrown in the towel. NetApp can't match EMC's deep pockets, and when push comes to shove, more cash beats idealistic growth notions every time. NetApp CEO Dan Warmenhoven "cannot justify engaging in an increasingly expensive and dilutive bidding war that would diminish the deal's strategic and financial benefits."
So EMC's $33.50 bid per Data Domain share now has the full backing of Data Domain's board of directors, making for a $2.1 billion sticker price once you back out Data Domain's $250 million or so in cash equivalents. The shareholder meeting to vote on the already-signed NetApp combination has been canceled, and the EMC merger should be consummated by the end of July. Data Domain is "packing up, shacking up" with the unsolicited latecomer to this bidding war.
I still think that EMC never really wanted Data Domain to itself. NetApp doesn't have an in-house deduplication product, while EMC bought Avamar three years ago to get into that game. Granted, that was a much smaller deal at $165 million, and Data Domain brings a distinguished client list that includes media serving expert TiVo (Nasdaq: TIVO ) and Canada's licensee of satellite radio maven Sirius XM (Nasdaq: SIRI ) among its highest-profile names. This still smells like a big bully mostly wanting to keep Data Domain away from ambitious competitors. Nevertheless, EMC expects the deal to generate fresh operating profits as early as next year.
NetApp can call it another lonely day -- and then go looking for some other way to bolster its growth efforts. May I suggest bite-sized bids for something like storage veteran turned deduplication specialist Quantum (NYSE: QTM ) , or backup expert 3PAR (NYSE: PAR ) ? You can go your own way, of course.