EMC raises offer for Data Domain to $2.4 billion

By Jim Finkle

BOSTON (Reuters) - EMC Corp (EMC.N) increased its offer for Data Domain Inc (DDUP.O) by 12 percent, valuing the specialty storage maker at $2.4 billion and raising the stakes in a bidding war against rival NetApp Inc. (NTAP.O).

The move drove Data Domain shares up 2.3 percent to $33.97 on the Nasdaq on Monday afternoon, above EMC's new $33.50-per-share bid, suggesting that investors expect NetApp to respond with a higher offer.

Analysts say EMC appears to have the edge in the battle because it has a stronger balance sheet and its bid is all in cash, whereas NetApp's $30-per-share offer includes some stock. Issuing new stock would dilute NetApp's per-share profit, making it tougher for the smaller company to match EMC's bid.

"The end game is that NetApp is probably not going to win," said Jefferies and Co analyst Bill Choi.

NetApp shares fell 1.9 percent to $18.61, while shares of EMC, the world's largest maker of data storage equipment, rose 0.8 percent to $12.88.

NetApp Chief Executive Dan Warmenhoven said in a statement that the company's board would weigh its options following EMC's move and would provide an update shortly. A spokesman for Data Domain declined comment.

Some analysts said that NetApp might not come back with a higher bid, given that EMC could offer as much as $34 per share to $35 per share for Data Domain, according to people familiar with its strategy.

Purchasing Data Domain for $35 a share in cash and stock would hurt NetApp's profit by 12 cents per share in the coming year, while an EMC cash deal would boost its earnings per share by 1 cent, Choi said. Those calculations do not assume any cost synergies.