Despite
reports that EMC Corp. (NYSE:EMC) might raise its unsolicited, $30 per share cash bid for Data Domain Inc. (NASDAQ:DDUP) as high as $35, it might not need to go much higher than its current bid to wrest the data networking company from its existing agreement with NetApp Inc. (NYSE:NTAP).
So says ThinkEquity LLC analyst Rajesh Ghai in a research note Tuesday. He recommends that Data Domain shareholders engage in a little profit-taking. After all, the company's shares have been trading in the $32 to $33 range for the past several days.
Ghai, along with several other observers, has said that even though NetApp's and EMC's offers are both at $30 per share, the fact that NetApp's is a mixture in cash and stock makes it less favorable to Data Domain shareholders than the certainty of EMC's all-cash offer.
That said, Monday Data Domain rejected EMC's bid and said it would stick with its sweetened agreement to be acquired by NetApp. (The Deal Pipeline subscribers can read more about it
here.)
NetApp and Data Domain originally signed a $25
per share, $1.5 billion agreement to merge on May 20. EMC stepped in
with its $30 per share offer June 1; NetApp increased its offer to the
same level on June 3, and Data Domain accepted its sweetened bid that
same day. Ghai also said he doesn't expect the
Federal Trade Commission's antitrust review to hamper the deal, regardless of who ends up the winning bidder. But it could delay matters, and, with Data Domain shares closing Monday at $32.87 and the fact that he doesn't think NetApp can raise its bid much higher (it has a relatively small cash balance and risks dilution by upping its offer), Ghai doesn't see the company's stock going much higher.
He wrote:
"We do not see significant upside to DDUP's stock from current levels. However, we believe that anti-trust issues have the potential to delay the deal, and, in the unlikely worst case, scuttle it. Given that we expect little upside to yesterday's close and the element of new risk introduced by the FTC, we recommend investors with long positions in DDUP stock take profits at current levels." - Olaf de Senerpont Domis
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