Has EMC rustled Data Domain away from NetApp, HP and Cisco?

This is going to have a negative impact on Michael Morris's blog. This deal must not go through!

How does EMC go from this:

http://chucksblog.emc.com/chucks_blog/2009/05/emc-world-wrap-up.html

to an acquisition offer for Data Domain.

Received the following research note this morning from RBC Capital Markets regarding the EMC offer for Data Domain, "EMC is flexing the muscles, EMC announced an all-cash offer for Data Domain that trumps NetApp's current offer. EMC announced a $30 all-cash per share offer for Data Domain (DDUP), which reflects a 20% premium to the cash and stock offer announced by NetApp. The EMC offer equates to an enterprise value of ~$1.8 billion for DDUP, with EMC funding the purchase with cash on-hand (~$7.8B for core EMC). EMC plans to commence a tender offer, which should enable them to close the deal sooner than NTAP's timeline of 90-120 days.

"EMC expects the transaction to be neutral to FY09 and accretive to FY10 non-GAAP EPS primarily through revenue synergies, not cost reductions. CEO Tucci noted he believes the market for back-up and archiving to be ~$10.0B and EMC's portfolio in this segment (Avamar) and DDUP would be ~$1.0B in sales. EMC's perspective is the combination of DDUP's technology (target based) and EMC's Avamar (source based) should enable EMC to accelerate the adoption of de-duplication across enterprise sector."

RBC added, "Regarding NetApp's offer, directors and executives of DDUP (~22% of the votes) pledged to support NetApp's offer, which may complicate EMC's offer, and if DDUP terminates NetApp agreement, DDUP is required to pay NetApp a termination fee of $57M, which is minuscule (~3%) in regards to EMC's offering price.

"Given the premium of EMC's all cash offer for DDUP, NTAP would need to raise its bid at or above $30 (currently $25) and offer an all cash transaction. NTAP currently has $2.6B of cash (net of GSA settlement), suggesting there is room/ability for NTAP to increase the offer. However, we would note NTAP has $1.34B of net-cash i.e., an all cash offer would weaken NTAP's balance-sheet, resulting in net-debt on its books."

RBC concluded, "Based on our valuation and historical P/E analysis, we estimate potential FTM P/Es of 18x/12x on upside/downside execution. Currently, EMC is trading at ~17x FTM EPS, implying positive sentiment, which is consistent with the average level across our coverage as investor sentiment has increased due to the belief that enterprise spending bottomed in 1Q09."

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Sincerely,

Brad Reese
BradReese.Com Cisco Refurbished

Quantum is the leader in data depluication with their DX and DXi virtual tape libraries

www.tapeoutlet.net

I'm not sure why HP gets mentioned as interested in Data Domain. HP already has deduplication technology - the VLS9000 family (targeting enterprise customers) are highly scalable and the D2D Backup System (competes with Data Domain and targets SMB) has technology developed by HP Labs.