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Data Domain picks NetApp over EMC as war heats up

BOSTON/NEW YORK (Reuters) - Coveted data storage company Data Domain Inc DDUP.O signed a new agreement to sell itself to NetApp Inc NTAP.O for $30 a share, rejecting a similar bid from EMC Corp EMC.N and raising the stakes in a rare bidding war.

EMC said on Wednesday that it had started buying up stock in Data Domain, claiming its $30-a-share offer was superior.

Bidding wars have been rare over the course of the recession as acquisition activity has slumped and companies have refused to overpay for businesses.

Even when Oracle Corp ORCL.O unexpectedly signed a deal to buy Sun Microsystems Inc JAVA.O in April, there was no counter-bid from rival IBM IBM.N, which had been negotiating for weeks to buy Sun.

But data storage is a hot area in the technology sector, as increasing use of the Internet forces companies to search for more efficient ways to store huge amounts of information.

Data Domain is coveted because it has a technology that helps get rid of redundant data that consumes space in computers. It is one of the fastest-growing segments in storage.

NetApp and EMC also sell this so-called data deduplication technology, though they earn the bulk of their revenue from traditional data storage equipment without those features.

DEAL MAKER

NetApp, one of the top makers of data storage equipment, and Data Domain said their cash-and-stock deal was worth $1.9 billion, net of cash and subject to adjustments. NetApp initially agreed to buy Data Domain for $25 per share in cash and stock, or $1.5 billion, on May 20.

NetApp argues that EMC may have trouble winning antitrust clearance for an acquisition of Data Domain because their products overlap, a claim that EMC denies.

Jay Kidd, chief marketing officer for NetApp, said in an interview with Reuters that he is confident his company would be able to win regulatory clearance more quickly than EMC.

“They are going to have too many products in the same space. Some of them would have to be ended,” he said.

NetApp upped its offer just two days after EMC, the world’s biggest maker of corporate data storage equipment, sought to top NetApp with a $30 per-share bid, all in cash, that it said was worth $1.8 billion net of cash.

It was not immediately clear why the two companies provided different calculations for the total value of their $30 per share offers.

Tom Burnett, director of research with Wall Street Access, said that more offers could follow from both suitors.

“There is no guarantee that EMC will come back with a $32 cash. But it’s unlikely they only had one bid in their pocket,” he said.

If EMC makes a higher offer, NetApp potentially has room to come back with an even higher stock-and-cash offer. “They’ve got some fire power,” Burnett added.

Officials with EMC could not be reached to comment on whether the company would make another offer for Data Domain.

Data Domain shares rose 3 percent to $32.54 in Nasdaq trading, suggesting that investors believe EMC or another suitor will respond with a higher bid. They were little changed after it announced the revised deal with NetApp.

They have soared 82 percent since Data Domain agreed to sell itself to NetApp last month.

NetApp fell 4 percent to $18.57 while EMC dropped 3 percent to $12.48.

Reporting by Jim Finkle in Boston, Anupreeta Das in New York and S. John Tilak in Bangalore; Editing by Derek Caney

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