EMC's $1.8 billion offer for Data Domain tops NetApp

BOSTON/NEW YORK (Reuters) - Data storage giant EMC Corp EMC.N threw a wrench into rival NetApp Inc's NTAP.O plan to buy Data Domain Inc DDUP.O for $1.5 billion by offering to pay another 20 percent for the company.

Data Domain shares surged 17 percent after the news of the unsolicited offer.

EMC said late on Monday that it would pay $1.8 billion, or $30 a share, in cash for Data Domain, a move that will boost sales for the world’s biggest maker of data storage equipment at a time when its revenue is on the decline.

“This acquisition is all about accelerating growth,” EMC Chief Executive Joseph Tucci said on a conference call.

Sales at EMC, the world’s top maker of data storage equipment, are projected to fall 9 percent this year to $13.5 billion, according to Reuters Estimates. Adding Data Domain technology will make EMC the biggest player in the so-called data deduplication market, one of the few segments of the tech industry that has held up well in the recession.

Data deduplication is used to filter data as it is backed up, removing duplicate pieces of information to save costly storage space.

“There’s not that many businesses around with this much potential. I wanted to own this technology,” Tucci said.

Data Domain shares jumped 17 percent in extended trade to $30.71 from $26.35 at the close of regular Nasdaq trading.

A spokesman for Data Domain declined comment. Officials with NetApp could not be reached.

EMC already sells some deduplication products, but Data Domain’s technology is more popular with customers backing up large databases, said Dave Russell, an analyst with technology research firm Gartner.

Tucci estimated that EMC would sell more than $1 billion in data deduplication products next year if it is successful in closing the acquisition.

NetApp said on May 20 it would buy Data Domain for $1.5 billion, or $25 per share in cash and stock. The breakup fee is $57 million, according to a filing.

Tucci complained in a letter to Data Domain CEO Frank Slootman that EMC was not given a chance to bid before the NetApp deal was announced, “particularly since I believe you should have been aware of our interest.”

Tucci said in a conference call that he had not consulted with Data Domain prior to making the offer because the merger agreement prohibited Data Domain from holding discussions with competitors.

Analysts said that EMC might be able to squeeze more value out of Data Domain because it has a larger sales network to distribute the new technology.

EMC officials said that they would soon commence a tender offer for all outstanding Data Domain shares, but declined to elaborate on the timing.

The deal would add to 2010 earnings, and be neutral to 2009 earnings, EMC said.

EMC shares were quoted at $12.29 after closing Monday’s session up 5.7 percent at $12.42 on the New York Stock Exchange. NetApp shares were unchanged in extended trade after rising 6.1 percent to $20.69 on the Nasdaq.

Reporting by Anupreeta Das, Jim Finkle and Ritsuko Ando; Editing by Carol Bishopric