It’s official: Data Domain’s board doesn’t like EMC

by Robin Harris on Thursday, 4 June, 2009

Joe, how about “Hawaiian shirt Fridays?”
Data Domain’s board is has rejected EMC’s all cash offer in favor of NetApp’s enhanced cash + stock offer. But shareholders get the ultimate say.

EMC is continuing with its tender offer for outstanding stock at $30/share through June 29. If it gets a majority of the ~62 million shares, it’s all over.

Except for the fallout.

No non-competes in California
While everyone has been polite so far, EMC’s hostile offer will turn up the heat. And the all cash offer and EMC’s stagnant stock price means that DD employees have to consider their options – which, BTW, are usually fully vested in event of an acquisition.

NetApp has nothing to lose by formally pushing the anti-trust issues. Engineers are getting calls from old friends. Business plans are being sketched on cocktail napkins at Birk’s.

Saw VI – “DDUP, are you grateful to be alive now?”
EMC could end up with a shell company: some patents, products and a brand, but much of the newly-affluent talent gone. And maybe they can earn their cash back in the next few years before something better comes along.

The StorageMojo take
EMC has irritated more folks than the occasional blogger. Their sales-driven culture doesn’t mesh well with Valley technophiles. And their stock price is a turn-off.

Emotions will cool. We’ll have the answer by month’s end – if EMC doesn’t extend their offer. There’s been so much turnover in DDUP stock in the last 2 weeks that it’s hard to know – for outsiders – who still owns what.

Financial investors will take EMC’s money if they haven’t already sold. People who see the chance to rebuild NetApp’s fortunes – and stock price – haven’t.

Hostile takeovers have a poor record in high-tech. But that’s a risk Tucci is willing to take.

Courteous comments welcome, of course. StorageMojo will be returning to its irregularly unscheduled programming shortly.

{ 10 comments… read them below or add one }

Stephen Foskett June 4, 2009 at 9:01 am

Be careful about your vesting assumptions. While I’ve had many folks repeat the canard that options fully vest in the event of a buyout, it’s more of an urban legend. Whether or not options vest is based on the wording of both the option agreement and the merger or buyout terms, and the result has varied wildly from options being expired to fully vesting. Probably the most common real-world situation is for options in company X to be merely exchanged for options in company Y with similar terms. Translation: This is not necessarily a “hooray” moment for current DD employees to go out and start new companies.

On the other hand, non-competes, while enforceable even in California as we’ve recently seen, can not be forced on employees without “consideration”, often in the form of company shares. No matter who wins, we might see some DD alums form new companies. And that’s good news for the industry, since these bright folks undoubtedly have some great ideas to run with!

James June 4, 2009 at 4:05 pm

Birk’s or Bucks?

where is avamar? June 5, 2009 at 12:44 am

Storage isn’t my area but I was asked to participate in a SAN RFI/RFP at work a few years back.

Back then, de-dupe was up and coming with Avamar (pre EMC purchase) and DataDomain being two very promising products…
Avamar being a replacement for the entire backup system (global file level dedupe).
DataDomain being an appliance that mimics a larger disk based backup system (backup stream dedupe).

I personally liked Avamar but they didn’t submit a bid for the RFP 🙁

A few weeks later heard the announcement that EMC purchased Avamar.

Looking at EMC’s product page now, seems like there has been some work on the product but there isn’t anything in the marketing to really show off the advantage of global dedupe.

where is avamar? June 5, 2009 at 12:45 am

Storage isn’t my area but I was asked to participate in a SAN RFI/RFP at work a few years back.

Back then, de-dupe was up and coming with Avamar (pre EMC purchase) and DataDomain being two very promising products…
a) Avamar being a replacement for the entire backup system (global file level dedupe across all systems).
b) DataDomain being an appliance that mimics a larger disk based backup system (backup stream dedupe).

I personally liked Avamar but they didn’t submit a bid for the RFP 🙁

A few weeks later heard the announcement that EMC purchased Avamar.

Looking at EMC’s product page now, seems like there has been some work on the product but there isn’t anything in the marketing to really show off the advantage of global dedupe.

the storage anarchist June 5, 2009 at 5:38 am

Robin –

This may surprise you, and you might not believe it, but it is true:

Today and every Friday in June is indeed Hawaiian Shirt Friday for Symmetrix Product Development!

Mahalo!

Getting ResumeReady June 5, 2009 at 9:18 pm

I would bet that if EMC’s offer is successful, Data Domain will be a shell of its former self a year from now. I just don’t think their culture will fit at all, especially considering how both companies are programmed to hate each other.

I also don’t think Frank Slootman, David Schneider, or any of the other execs, will play second fiddle to anybody at EMC (and possibly even NetApp). They’re too successful, and too independent. They might stick around for a few months afterward, but I’d think they’d be gone a year from now. Even if Data Domain is run as a totally separate product division, those guys now have to answer to people above them, and I just don’t see that happening.

Neither pre-IPO nor post-IPO employees have any incentive to stick around, either, if they don’t want to. Pre-IPO people have the luxury of staying or walking out the door with their bag of money. Post-IPO people have so few options, there are no “golden handcuffs” to keep them around if they don’t like the new owners. And as the original article read, people are starting to get calls from headhunters and old friends already.

One thing’s for certain…Data Domain is full of talented individuals. If whoever buys the company doesn’t treat them right and provide some kind of meaningful retention and financial upside (and I’m not talking stock options either…cash is KING, baby!), with the economy improving, there are many that will walk out the door to greener pastures. Especially if the new owner is one that just recently announced they plan to lay off about 6% of the company and “ask” the remainder to take a 5% pay cut. Yeah, that policy would go over like a lead balloon at your new acquisition…there would be a stampede out the door.

Personally, I think NetApp/Data Domain would blend better and have more financial upside over the long term. However, I bet the institutional investors (isn’t over 50% of DDUP owned by just a handful of investors?) go for the cash offer (especially if EMC ups it) and take the money and run.

Joe Kraska June 6, 2009 at 11:40 am

Avamar? File level dedup?

It’s not a good offering in the modern world of virtualization, where the files (the virtual machine disks) are typically large, and all at least somewhat different. The Avamar guys would say “put a backup agent in each vm”. That’s a terrible idea: for our operations, that would create an administrative burden of maintaining over 800 backup clients. What a nightmare.

No wonder they’re desperate for Data Domain, eh?

Sub-file level dedup is the only thing really “right” for the virtual data center: even dedup on primary storage, ala NetApp, is better than file level dedup.

Joe Kraska
San Diego

Jim Donaldson June 6, 2009 at 4:20 pm

@Joe Kraska: Avamar is sub-file dedupe, and works fantastically in VMware environments.

Joe Farmer June 7, 2009 at 7:39 am

that’s right. if there is one thing where avamar works really well, that’s vm backups.

Joe Kraska June 19, 2009 at 3:30 pm

Hmmm. It dedupes at the sub file level in a VCB environment, or requires an agent in each vm?

Joe.

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