EMC Wins Pyrrhic Victory for Data Domain

(MoneyWatch)  The battle has been raging for over a month as EMC and NetApps contended for Data Domain -- ironic, as the prize was a company whose products actually reduced the need for the hardware that the two competitors sell for a living. Now EMC has walked away with the prize, though it seems that the real payoff would have to be in the negative sense of denying a strategic asset to a competitor.

Data Domain's final price was at the $33.50 a share offer that EMC had boosted just a few days ago, which comes out to some $2.1 billion. Late yesterday, NetApp finally gave up as the company simply couldn't match EMC's deep pockets:

Analysts say NetApp couldn't match EMC's price and still make a compelling case to its shareholders for the deal, because it would have to issue too many new shares to raise the value of its offer. Issuing lots of new shares reduces the amount of profit per share that a company earns.NetApp's CEO, Dan Warmenhoven, said in a statement his company pulled out because the bidding had gotten so expensive it would have hurt the company's finances to continue.

Data Domain has already paid a $57 million penalty to NetApp for pulling out from that deal. But EMC is paying handsomely enough that the amount becomes a trifle. Data Domain's 2008 revenue was $274.1 million, meaning that the acquisition price is 770 percent of annual revenue. You have to wonder how much more in hardware revenue that EMC will be foregoing to gain that additional income, and whether the company will find some way to minimize sales of the data de-duplication technology to preserve its bottom line.