Legal pass likely on Data Domain deal; IPC sticks with Max; SumTotal bargains with Accel-KKR

By Cristal Cody

Tupelo, Miss., May 21 - Shares of Data Domain, Inc. soared 34.00% to close Thursday up $6.09 at $24.00 on a buyout offer from NetApp, Inc.

The $1.5 billion transaction is expected to sail through regulatory reviews and shareholder approvals, an analyst told Prospect News on Thursday.

In other situations, IPC Holdings, Ltd. rejected a revised hostile takeover bid by Validus Holdings, Ltd. on Thursday and reiterated support for the insurer's amalgamation with Max Capital Group Ltd. Market observers say the deal with Validus is riskier because it carries financing conditions.

Also on Thursday, SumTotal Systems, Inc. said the new $4.85-a-share cash buyout offer from Vista Equity Partners Fund III, LP is superior to Accel-KKR LLC's bid of $4.80 a share. The auction is expected to continue but not for long as the price gets steeper, an analyst told Prospect News.

Meanwhile, stocks continued their slide on Thursday. The Dow Jones Industrial Average lost 129.91 points, or 1.54%, to close at 8,292.13.

The Standard & Poor's 500 index fell 15.14 points, or 1.68%, to 888.33, and the Nasdaq Composite index dropped 32.59 points, or 1.89%, to close at 1,695.25.

NetApp and Data Domain

Data storage company NetApp said after the markets closed Wednesday that it will acquire data backup provider Data Domain for $25.00 a share in cash and stock.

The offer includes $11.45 in cash and 0.75 shares of NetApp for each share of Data Domain, NetApp said late Wednesday on a conference call with analysts.

Santa Clara, Calif.-based Data Domain's board has unanimously approved the deal.

Sunnyvale, Calif.-based NetApp said it plans to operate Data Domain as a product line within its organization.

The acquisition is expected to close in the next 60 to 120 days.

The transaction includes a $57 million termination fee and requires clearance of the Hart-Scott-Rodino antitrust filing, according to NetApp's 8-K filing with the Securities and Exchange Commission on Thursday.

Mark Kelleher, a senior analyst with Brigantine Advisors LLC, said in an interview Thursday that the deal should close without any regulatory issues or interference from rival bidders.

"The two companies are basically in different markets. One's in primary storage market and one's in the secondary storage market," he said.

NetApp's bid is "three times next year's revenue and 40 times earnings [for Data Domain], so that's a pretty good premium," Kelleher said. "The question always comes up whether someone else will make a bid for them, and I don't think so because of the premium and because the fit is so good with NetApp."

NetApp shares gained 54 cents, or 3.11%, to close at $17.88 on Thursday.

IPC backs Max

Validus increased its hostile bid for IPC to $1.69 billion, or $30.14 per share, on Monday, which included $3.00 in cash and 1.1234 Validus shares for each IPC share.

Validus' first bid included no cash and 1.2037 shares for each IPC share.

IPC's board said in a statement Thursday that the new offer is not a superior proposal and recommends that IPC shareholders reject the bid.

In a letter to Validus that was released late Thursday, IPC said that under its bylaws, Validus will not be able to obtain registration as a legal owner of 10.00% or more of IPC shares or exercise voting control over IPC because of the mandated reduction for investors with more than 10.00% of stock.

IPC and Max investors will vote on their amalgamation at the Bermuda-based companies' annual shareholder meetings on June 12.

Market observers don't expect Validus to emerge as the winner.

IPC's deal with Max Capital includes a $50 million breakup fee, one market source noted.

"There is less certainty that Validus will complete the offer," the source said. "Validus has not been able to conduct due diligence on IPC, and the offer is conditional on amending Validus' credit facilities."

IPC shares fell 34 cents, or 1.32%, to $25.35, while Max Capital's stock lost 32 cents, or 1.98%, to close at $15.81 on Thursday,

Shares of Validus closed down 19 cents, or 0.85%, at $22.16 on Thursday.

SumTotal awaits next bid

SumTotal said in a statement Thursday the new $4.85-a-share offer from Vista is a superior proposal. However, under the amended agreement terms with Accel-KKR, SumTotal must negotiate with the buyout firm through Tuesday.

Accel-KKR offered $4.80 a share in cash, a nickel higher than Vista's earlier bid of $4.75 a share, for SumTotal on Tuesday.

Vista made its latest offer on Wednesday for $4.95 a share in cash if SumTotal's revised $6.67 million breakup fee with Accel-KKR is invalidated or reduced to the original $3.1 million fee.

If the breakup fee stands, Vista said it would pay $4.85 a share in cash for the Mountain View, Calif.-based software solutions company.

SumTotal also said that Accel-KKR indicated it is not willing to reduce the termination fee.

Another round of bidding is likely, but the game won't last too much longer, an analyst told Prospect News.

"At a certain point as in any auction, it's going to get too rich for one of the bidders," the analyst said.

Vista, which owns about 13.00% of SumTotal's outstanding stock, is the company's largest stockholder.

SumTotal had first agreed on April 24 to a $3.80-a-share cash buyout from Accel-KKR.

Shares of SumTotal closed at $4.87, down 1 cent, or 0.20%, on Thursday.

Mentioned in this article:

Data Domain, Inc. Nasdaq: DDUP

IPC Holdings, Ltd. Nasdaq: IPCR

Max Capital Group Ltd. Nasdaq: MXGL

NetApp, Inc. Nasdaq: NTAP

SumTotal Systems, Inc. Nasdaq: SUMT

Validus Holdings, Ltd. NYSE: VR

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