DEALTALK-EMC, NetApp war for Data Domain could drag on

(For more Reuters DEALTALKs, click [DEALTALK/])

* EMC, NetApp unlikely to raise bids before reg review

* EMC confident of gaining regulatory approval

* NetApp says EMC deal would not win antitrust clearance

* EMC could raise offer if regulators raise concerns

By Anupreeta Das

NEW YORK, June 10 (Reuters) - The bidding war over storage
company Data Domain Inc (DDUP.O) could drag on for weeks until
antitrust regulators review competing offers from EMC Corp
(EMC.N) and NetApp Inc (NTAP.O) for red flags.

Although No. 1 corporate data storage equipment maker EMC
says it is confident it will get the regulatory green light,
people familiar with the matter said the company may raise its
offer if antitrust concerns appear to make a tie-up with NetApp
more preferable to Data Domain shareholders.

Data Domain, whose technology helps companies reduce the
amount of storage space they need to back up data, has agreed to
be acquired by EMC's smaller rival, NetApp, for $1.9 billion, or
$30 a share.

NetApp initially agreed last month to pay $1.5 billion, or
$25 a share, for Data Domain, before EMC stepped in with a
$30-a-share offer that compelled NetApp to raise its bid.

Data Domain shareholders are yet to vote on NetApp's offer,
and EMC's tender offer expires June 29.

But if Data Domain's stock price is any indication,
investors expect a higher bid. Shares of Data Domain have
hovered above $32 since EMC made its unsolicited offer.

Whether that higher bid comes could depend on the outcome of
the regulatory review, which is currently under way.

"My initial reaction was that, certainly, EMC is going to
get a second request" for information, said John Briggs, who
co-heads the antitrust practice at Axinn Veltrop & Harkrider LLP
and is not involved in the deal.

"Although it's not completely clear that NetApp isn't going
to get a second request also," Briggs said, adding it was less
likely than EMC.

Regulatory requests for more information are often
considered setbacks for mergers -- especially when there are two
potential buyers -- because they can delay deals for months.

"It's possible that one of these companies gets a second
request and the other one doesn't, in which case it's game
over," Briggs said.

THE BATTLE FOR STORAGE CONTROL

If regulators raise concerns about a combination of EMC and
Data Domain, EMC might raise its offer and include assurances
that the deal will get done, two sources told Reuters on
condition of anonymity because the talks are confidential.

EMC, which has more than $7 billion in cash, has the
financial heft to raise its offer by one or two dollars per
share.

If regulators raise concern, EMC will need to increase their
bid "appreciably" to offset regulatory risk, one source said.

EMC spokesman Michael Gallant said the company is confident
that the deal will win regulatory approval following a normal
review.

That has not stopped NetApp from waving the antitrust red
flag. The Sunnyvale, California-based company has said its
cash-and-stock proposal is superior, partly because a deal
between EMC and Data Domain would not clear antitrust review.

EMC and NetApp both make hardware and software that let
companies store, manage and back up their data.

Data Domain specializes in a technology that eliminates
duplicate pieces of information in the process of backing it up,
thereby saving companies costly storage space.

NetApp's chief marketing officer, Jay Kidd, said EMC already
dominates the market for emerging storage technologies, such as
virtual tape libraries, which come equipped with deduplication
software.

Kidd said EMC owns more than 50 percent of the market for
this technology, including a partnership with deduplication
software maker Quantum Corp (QTM.N). NetApp controls only 7
percent of the market, he said.

EMC and Data Domain have complementary storage technologies,
EMC spokesman Gallant said. "We reject NetApp's efforts to
publicly suggest otherwise," he said.

Bill Andrews, chief executive of privately owned data
deduplication company ExaGrid, echoed NetApp's antitrust
concerns.

He also questioned EMC's intent: "Are they a spoiler or are
they an acquirer? EMC may have entered the game to drive the
price up for Data Domain, thereby making it more expensive for
its rival NetApp to acquire the company, Andrews said.

In that case, "EMC could be counting on regulatory
roadblocks" to walk away from the deal, having accomplished its
mission, he said.
(Reporting by Anupreeta Das; editing by Matthew Lewis)