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 The heated battle for storage technology company Data Domain Inc. may seem like a distant memory now that EMC Corp. (NYSE:EMC) has absorbed the specialist in so-called de-duplication technology for $2.2 billion. But a handful of Fenwick & West LLP lawyers and Jonathan Turner of Qatalyst Partners, the San Francisco tech advisory boutique he co-founded with former Credit Suisse First Boston tech banking star Frank Quattrone last year, gathered at Fenwick's Mountain View offices last week to reminisce about the deal (Quattrone was originally slated to appear too, but got waylaid on the East Coast, Turner said).The deal's closing on July 23 was the culmination of an epic battle that started, at least publicly, with storage networking technology rival NetApp Inc. (NASDAQ:NTAP) offering $25 per share in May. The acquisition stands as a case study on how challenging it can be to structure a merger agreement and the negotiations leading up to it in a way that doesn't hurt a sought-after target's business prospects while still leaving the door open for a higher bid. Last week's meeting was kind of a victory lap for Data Domain advisers, but it's hard to argue it wasn't deserved. The transaction is what Quattrone likes to call a "Hall of Famer," Turner said, and with good reason. The final price tag carried a superlative set of multiples and premium measures. It was 34% above Data Domain shares' previous twelve-month high, but a whopping 222% premium on the shares' twelve-month low, reached on March 16, the day before NetApp came to Data Domain with a merger proposal, Turner said. Data Domain and its board had not considered the company as up for sale, so in diving into negotiations with NetApp, it was most concerned about keeping the talks under wraps for fear of how it might affect customers' perceptions of the company's future, said Fenwick partner Dennis DeBroeck. "If they were in play, it could stall sales completely," he said. To avoid alerting the market that Data Domain was in takeover talks, the company and its advisers did something Fenwick partner R. Gregory Roussel described as very unusual -- they skipped the presigning market check, which usually involves scouting out whether other players in the market would potentially bid for a company. Data Domain's board set in place several terms to protect against any potential challenges to this decision, such as a reasonable termination fee and a clear path to considering and accepting a higher bid. NetApp first offered $22 to $23 per share for Data Domain, but by the time an agreement was announced on May 20, negotiations had upped the offer to $25 per share in cash and NetApp stock. "NetApp was trying to put together a really compelling, maybe even pre-emptive, offer," said Fenwick partner and firm chairman Gordy Davidson. Pre-emptive it wasn't, as EMC made a $30 per share all-cash offer on June 1. Two days later, NetApp responded by matching it with a similar $30 per share offer, which Data Domain accepted on June 15. Data Domain received some criticism from not jumping on the all-cash, termination fee-free offer from EMC. But there was still the question of the antitrust approval for both deals. NetApp's offer was Data Domain's "bird in hand," as its advisers called it. "It had certainty," Davidson said. Once the Federal Trade Commission on July 2 granted early termination of the HSR antitrust review to both deals, the air was cleared for either to proceed, said Qatalyst's Turner. "Ultimately we knew EMC had more firepower," he said. "We'd squeezed the lemon pretty hard in cash and stock with NetApp. We wanted to let the auction continue." Obviously, the tactic paid off. On July 6 EMC boosted its tender offer to $33.50 per share in cash, and two days later, Data Domain accepted the offer and terminated its agreement with NetApp. The fight was a fierce one, and if there was any doubt as to how competitive the storage networking landscape was, this NetApp sponsored video from early this year before the battle for Data Domain broke out, leaves no doubt. - Olaf de Senerpont Domis
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