WRAL Tech Wire

After failed bid for Data Domain, is NetApp a target?

RESEARCH TRIANGLE PARK, N.C. - After throwing in the towel in its bid for Data Domain, what’s next for NetApp?

The data storage technology firm, which has a major operation in the Triangle, gave up in its attempts to buy Data Domain after much larger EMC made a bigger $2.1 billion offer for Data Domain earlier this week.

Some analysts are now speculating that NetApp itself may become a takeover target.

Even NetApp President hinted at such a possibility in an interview with Bloomberg on Thursday.

“This is America – everything has a price,” Tom Georgens said.

“On the other hand, our clear preference is to stay independent.”

One analyst echoed the thoughts of several others who said NetApp was smart to not leverage itself further in a bid to beat EMC.

Calling NetApp’s decision “prudent,” Doug Reid at Thomas Weisel Partners wrote in a research note: "We believe (NetApp's) decision to abandon its effort to acquire Data Domain is prudent, particularly given the dilutive nature of a potentially higher, most likely stock-funded counter bid by (NetApp).”

He stuck with an “overweight” rating on NetApp (Nastaq: NTAP) and set a target share price of $22.

Wall Street seemed to echo Reid’s thinking. NetApp shares closed at $19.01 Thursday, up 62 cents.

However, EMC’s winning deal doesn’t mean consolidation is over in the data management space.

“What you are seeing in the storage market is a thinning of the herd,” Ashok Kumar of Collins Stewart LLC told Bloomberg. “In this market, either you’re a consolidator or you are consolidated - and if you don’t fall in either category you are marginalized. NetApp is in danger of being marginalized.”

NetApp will receive $57 million as a "breakup fee" from Data Domain since the companies' boards had agreed to a deal before EMC stepped in. However, that money may turn out to be a bitter consolation prize for NetApp management, which felt it had its hands on a valuable prize.

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