U.S. government could hinder EMC bid for Data Domain

By Jim Finkle

BOSTON (Reuters) - The U.S. government could hinder EMC Corp's (EMC.N) $1.8 billion bid for Data Domain Inc (DDUP.O) as antitrust regulators are expected to scrutinize it more closely than a competing offer by NetApp Inc (NTAP.O).

While by far the bigger company, EMC is in a more precarious antitrust position than its smaller rival because EMC is the largest player in the market for so-called data reduction technology in which Data Domain specializes.

Both bids are being reviewed by the U.S. Federal Trade Commission, but antitrust experts and industry analysts say EMC's offer could get delayed for weeks or months, while they expect NetApp's to win quick approval.

"If there is a question mark from FTC, it could drag for months. In that situation, shareholders would probably be leaning toward saying 'I'll take the offer from NetApp,'" said Wedbush Morgan Securities analyst Kaushik Roy.

Data Domain helps businesses save money on storage space by deleting duplicate data before they back it up. The technology is one of the few, fast-growing segments of the slumping data storage market.

NetApp initially agreed to pay $25 a share for Data Domain, before EMC stepped in with a $30-a-share tender offer direct to shareholders that compelled NetApp to raise its bid.

Data Domain shareholders have yet to vote on NetApp's cash and stock offer, while EMC's cash offer expires on June 29.

Neither deal can go through unless the FTC decides a merger would not violate U.S. antitrust laws. The agency began examining both proposals on Monday and has about two more weeks to either give a quick thumbs up or initiate a longer review.

It took the FTC weeks to start its reviews because of a turf war to get the case away from the Department of Justice.

"EMC has a strike and a half against it in just trying to deal with the situation because the FTC had to fight to get here. It's very hard to avoid a challenge to the deal after fighting to get the deal," said Stephen Axinn, senior partner with Axinn Veltrop Harkrider, who formerly worked in the DOJ's antitrust division.

EMC spokesman Michael Gallant disagreed. "Nothing has changed our expectation that EMC will receive a routine review by the FTC and that we will gain regulatory approval in a timely fashion," he said.

Evan Stewart, an antitrust attorney with Zuckerman Spaeder, said that he suspects the FTC will likely scrutinize both deals closely, which could mean delayed reviews for both EMC and NetApp.

"The Obama administration said publicly they are going to take a more activist stand with respect to deals of this sort, particularly in the high-tech area," he said.

Some analysts said that both EMC and NetApp's proposals for Data Domain will ultimately be cleared, but cautioned that regulators likely will want extra time to review EMC's bid because it is the leader in the field.

EMC pulled in about $90 million worth of sales from data reduction technology in its most recent quarter and it estimates that annual revenue from that business would quickly soar to $1 billion if it acquires Data Domain.