NetApp claims victory in bidding for Data Domain

SAN FRANCISCO — NetApp Inc. has claimed victory over EMC Corp. in a bidding battle for Data Domain Inc., a company whose products help cut unnecessary data storage.

The showdown over a technology that seems an odd fit for both companies might not be over, though.

NetApp and Data Domain said Wednesday they reached a deal for Data Domain to be acquired for $1.9 billion in cash and stock. The announcement caps a two-week public battle for the maker of “de-duplication” machines, but doesn’t mean the jostling is done. EMC could come back with another higher offer.

EMC said in a statement that it believes its $30-per-share offer is “superior” because it is all in cash.

An EMC spokesman didn’t immediately return a message seeking further comment.

NetApp defended its offer.

“They seem to be saying that the battleground has moved from the dollar-per-share amount into the specifics of the terms of the offer, and we believe we offer better long-term value in our offer,” Jay Kidd, NetApp’s chief marketing officer, said in an interview.

Brian Marshall, an analyst with Broadpoint.AmTech, said he expects EMC to put up a higher bid out of a desire to keep Data Domain out of a rival’s hands. He said he expects the price for Data Domain to go up to $33 to $35 per share.

“If I’m NetApp, I think it’s a difficult proposition to win because EMC has substantially larger resources — it’s my expectation EMC will probably win this war,” he said. “EMC doesn’t really need this company. I just think it’s a defensive move; they don’t want their closest competitor to have it.”

EMC had cash and investments of $9.8 billion at the end of its latest quarter, which ended in March. NetApp had $2.6 billion in cash and short-term investments at the end of its latest quarter. EMC has a $25 billion market capitalization; NetApp’s is $6 billion.

Both companies cited Data Domain’s fast-growing revenue — the 8-year-old, 825-employee company’s sales more than doubled last year to $274 million — as a reason for their interest.

Data Domain makes machines that flag files that a company has already stored, like copies of e-mails that went to multiple people, and prevents them from being stored again. The technology actually cuts down on the amount of storage a company needs to buy from companies like NetApp or EMC, which makes Santa Clara-based Data Domain a surprising takeover candidate for either company.

What NetApp sees in Data Domain, though, is the opportunity to take market share from EMC by offering the added de-duplication service, which helps companies lower their costs. Sunnyvale-based NetApp controls about 7 percent of the global market for external disk storage systems, while Hopkinton, Mass.-based EMC, the market leader, controls about 23 percent, according to the latest figures from market research firm IDC.

NetApp had originally offered $1.5 billion, or $25 per share in cash and stock, on May 20 before EMC swooped in with a higher offer of $30 per share. NetApp matched EMC’s offer earlier Wednesday, then later announced that the companies had struck a deal at the higher price.

Data Domain shares fell 14 cents to $32.40 in after-hours trading, after the acceptance of NetApp’s revised proposal was announced. The stock had gained 96 cents, or 3 percent, to close at $32.54 during the regular trading session.

NetApp’s stock rose 22 cents to $18.79 after-hours, after falling 77 cents, or 4 percent, to $18.57 in the regular session. EMC’s stock was unchanged.