UPDATE 2-U.S. begins antitrust review of Data Domain bids

Mon Jun 15, 2009 5:42pm EDT

Related Topics

* U.S. govt starts antitrust review of Data Domain bids

* Federal Trade Commission handling the review

* Data Domain board formally rejects hostile bid from EMC

* Board advises shareholders to support NetApp deal

* Data Domain shares fall 1.9 pct (Adds details on U.S. antitrust review, bylines)

By Jim Finkle and Anupreeta Das

BOSTON/NEW YORK, June 15 (Reuters) - The U.S. government has begun an antitrust review of competing bids for Data Domain Inc DDUP.O, an inquiry that could decide who succeeds in buying the specialty storage equipment maker.

The U.S. Federal Trade Commission is investigating dueling $30-per-share bids from EMC Corp (EMC.N), the world's biggest maker of data storage equipment, and smaller rival NetApp Inc (NTAP.O), officials at the two companies said on Monday.

EMC is trying to snatch Data Domain away from NetApp, which has already signed an agreement to buy the company for $1.9 billion. Both suitors are lobbying shareholders, and analysts expect the price to go higher.

The government review is a wildcard in the battle for Data Domain, a small but fast-growing player in the high-tech data storage market.

If regulators question whether an EMC-Data Domain combination could create unfair competition, that might push the balance in favor of NetApp, which analysts say otherwise lacks the financial resources to outbid EMC. [ID:nN10466690]

NetApp claims its products are more complementary with Data Domain's data back-up technology, whereas EMC's products compete more directly. EMC disputes that argument. "We anticipate a normal review without an substantive delay," said EMC spokesman Michael Gallant.

EMC and NetApp make hardware and software that let companies store, manage and back up their data. They want Data Domain's technology because it eliminates duplicate data during back-up processes, thereby saving companies storage space.

EMC and Data Domain are the two top players in the estimated $3 billion market for deduplication software, according to Gartner analyst Dave Russell. Other providers are Symantec Corp (SYMC.O), International Business Machines Corp (IBM.N) and Quantum Corp (QTM.N), which has a partnership with EMC.

Although NetApp had first announced plans to buy Data Domain last month and EMC followed with a hostile offer on June 2, the government delayed starting its review into the two offers as officials with the FTC and Department of Justice debated which agency should review the matter.

Also on Monday, Data Domain formally rejected EMC's bid, a widely expected move that set the stage for the storage giant to raise its offer in the rare bidding war in the tech sector.

Data Domain's board said it had been unable to engage in discussions with EMC because the company had not agreed to enter into standstill or confidentiality agreements as required by the merger deal it signed with NetApp last month.

The board added that it believed a deal with NetApp was more certain to close than with EMC.

If Data Domain were to break its agreement with NetApp, it would incur "considerable transaction expenses," and under most scenarios be required to pay NetApp a $57 million termination fee, Data Domain's board said in a filing with the U.S. Securities and Exchange Commission.

Data Domain shares fell 1.9 percent to close at $32.87, while NetApp dropped 1.6 percent to $19.82, both on Nasdaq. EMC fell 2.11 percent to $12.98 on the New York Stock Exchange.

(Reporting by Jim Finkle and Anupreeta Das, editing by Matthew Lewis and Richard Chang)

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