NetApp to EMC: I’ll See Your Bid and Rai … Nevermind.

EMC’s (EMC) surprise bid for Data Domain (DDUP) has sparked a bidding war of sorts with its storage rival NetApp (NTAP). I say “of sorts” because this morning NetApp raised its offer for Data Domain to $30 a share from $25 to match, but not exceed, EMC’s bid. Which is odd, because EMC’s nearly $2 billion bid is all-cash and NetApp’s is cash and stock. Why would Data Domain shareholder’s prefer NetApp’s offer to EMC’s? For a few reasons, says NetApp CFO Steve Gomo. “First, it offers a combination of value certainty — through the cash and the collar — coupled with the potential for long-term value upside through the ongoing ownership of NetApp stock,” Gomo wrote in a letter to Data Domain’s board of directors. “Second, the stock portion of the transaction consideration is expected to be tax-free to Data Domain stockholders. And third and potentially most important, we believe that a combination of Data Domain and NetApp offers clearly superior transaction certainty. Unlike a combination of Data Domain and EMC, which has substantial product overlap and which we believe will face significant regulatory challenges, a combination of Data Domain and NetApp has no meaningful regulatory risk.”

In short, NetApp’s stock is undervalued, so you’re getting a killer deal, and one free of regulatory scrutiny to boot. What’s not to like? Sadly for NetApp, it’s the $13.55 of its $30 a share bid offered in paper.