NetApp (NASDAQ: NTAP) has matched EMC's (NYSE: EMC) takeover offer for Data Domain (NASDAQ: DDUP) and at least one analyst thinks that's good enough to make the next move up to EMC.
NetApp this morning said it is raising its offer for data deduplication specialist Data Domain to $30 a share in cash and stock, matching EMC's all-cash offer.
NetApp claims the stock portion of the deal gives Data Domain a tax advantage, and NetApp also claims that an EMC-Data Domain deal would face regulatory scrutiny that a NetApp deal would not.
Analysts don't appear swayed by those arguments, but Avian Securities analyst Matthew Bryson says NetApp may have the upper hand for now.
"We believe that NTAP's arguments for its proposed transaction being superior to EMC's all-cash offer are somewhat shaky (especially the claim around antitrust issues as a potential sticking point)," Bryson wrote in a research note this morning, "however, at the end of the day we believe equal total value should be enough, particularly with NTAP controlling over 20 percent of DDUP's voting rights. As such, the ball is back in EMC's court now. Any further bidding by EMC will be a negative for NTAP as they will likely be forced to mach the higher price or lose what many think is a good growth opportunity."
R.W. Baird analyst Jayson Noland pegs NetApp's stake in Data Domain at 27 percent, and he said he expects EMC to raise its all-cash offer.
Stifel Nicolaus analyst Aaron Rakers agrees that a higher offer from EMC is a possibility. "We ultimately believe that EMC's cash position will allow them to make an increased offer above the current $30 per share offer in order to acquire Data Domain," he wrote this morning.
One company with a lot at stake in the outcome is EMC dedupe partner Quantum (NYSE: QTM). Analysts believe that an EMC-Data Domain combination would leave little room for Quantum. And if EMC fails in its bid to acquire Data Domain, it would need to reassure customers that it remains confident in its current dedupe product lineup.
"If EMC wins, what happens to their Quantum relationship?" wondered Enterprise Strategy Group analyst Brian Babineau. "What is NetApp's response? And if NetApp wins, does EMC just go back to Avamar and its Quantum relationship for their VTL?"
Babineau said EMC could also win if NetApp is forced to overpay for Data Domain.
"EMC really is the winner," he said. "They win if they get Data Domain, and they win if NetApp is bleeding at the end."
With Data Domain shares trading at around $32.50 today, investors seem to believe that EMC may make one more bid for the company.
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