Data Domain Holders File Suit, Alleging Co Favors NetApp
June 15 2009 - 8:46PM
Dow Jones News
Stockholders in Data Domain Inc. (DDUP) Monday said they had
filed a class action lawsuit, accusing Data Domain's board of
breaching its fiduciary duty by favoring one of two bidders for the
company, and seeking to halt the process.
The suit comes amid a fierce battle over the Santa Clara,
Calif.-based information management company between East Coast
storage giant EMC Corp. (EMC) and smaller Silicon Valley peer
NetApp Inc. (NTAP). Data Domain has recommended NetApp's bid over
EMC's.
The lawsuit, on behalf of the Police & Fire Retirement
System of the City of Detroit, accuses Data Domain of approving an
offer for the business from Sunnyvale, Calif.-based NetApp, though
it was aware of competing interest from EMC.
Both bidders are offering $1.9 billion, or $30 a share for Data
Domain. EMC's bid is cash-only, NetApp's a mixture of cash and
stock.
EMC offered $30 a share two weeks ago, several weeks after Data
Domain agreed to an earlier $1.5 billion cash and stock offer from
NetApp. When NetApp sweetened its offer to match EMC, Data Domain
reiterated its support for NetApp's offer.
The lawsuit alleges Data Domain gave NetApp "an improper bidding
advantage," through a termination fee, a "no shop/no talk
provision," and matching rights, according to a statement from
lawyers at Bernstein Litowitz Berger & Grossman, acting for the
stockholders.
"The board granted each of these deal protections before any
value maximizing process took place, in a blatant effort to ensure
that their favored merger partner is Data Domain's ultimate
acquirer," the statement continues.
The intense bidding war for Data Domain has underscored both the
signs of life in the market for technology M&A and the
attraction of tools which can help corporate customers manage their
sprawling data needs. Data Domain specializes in "de-duplication,"
automating the process through which duplicate data is deleted.
Data Domain's stock price has more than tripled from a March 16
low, closing Monday down 1.9%, at $32.87, in a lower overall
market.
The speed at which Data Domain has accepted NetApp's offer over
EMC's has surprised some observers because an all-cash offer such
as EMC's is generally preferred over a cash and stock one. Nearly
eight in ten of Data Domain's stockholders are institutional.
But insiders in Data Domain may be more sensitive to the NetApp
connections and disposed to owning shares in a merged company in
which Data Domain would represent a bigger part. Some analysts have
also emphasized the potential culture clash between Silicon
Valley-based Data Domain and Hopkinton, Mass.-based EMC.
NetApp Chairman and Chief Executive Dan Warmenhoven said in an
earlier statement the recommendation from Data Domain's board
emphasized that a NetApp acquisition would pose a smaller
regulatory risk.
The Federal Trade Commission said Monday it would review bids by
both EMC and NetApp.
Neither EMC nor Data Domain could immediately be reached for
comment Monday.
-By Jessica Hodgson, Dow Jones Newswires; 415-439-6455;
jessica.hodgson@dowjones.com