Data Domain accepts NetApp bid; Exelon predicted to up NRG bid; IPC vote projected as close

By Cristal Cody

Tupelo, Miss., June 3 - Data Domain, Inc. accepted a revised cash-and-stock offer from storage system provider NetApp Inc. on Wednesday, but that doesn't mean the bidding is over, an analyst told Prospect News.

In other situations, a market source said Wednesday that Exelon Corp. likely will increase its bid for NRG Energy, Inc. to close the deal.

Also on the hostile front, Validus Holdings, Ltd. felt validated by proxy firm RiskMetrics Group's support for its acquisition of IPC Holdings, Ltd. over IPC's transaction with Max Capital Group Ltd.

The firm's recommendation will make for a close shareholders vote, an analyst told Prospect News on Wednesday.

Looking ahead, Pepsi Bottling Group Inc. may be overvaluing itself, but PepsiCo, Inc. is expected to make a higher bid for its largest bottler, an analyst said Wednesday.

Meanwhile on Wall Street, a rally in stocks broke and sent indexes down Wednesday.

The Dow Jones Industrial Average fell 65.63 points, or 0.75%, to close at 8,675.24.

The Standard & Poor's 500 index lost 12.98 points, or 1.37%, to end at 931.76, and the Nasdaq Composite index closed down 10.88 points, or 0.59%, at 1,825.92.

No checkmate for EMC

Sunnyvale, Calif.-based NetApp offered $30.00 a share in cash and stock to match the $30.00-a-share cash bid made by EMC Corp. for Santa Clara, Calif.-based Data Domain on Wednesday morning.

Data Domain's board said late Wednesday that it has accepted the revised NetApp offer.

Under the revised terms, Data Domain investors will receive $16.45 a share in cash plus shares of NetApp based on a closing exchange ratio to equal the bid.

Meanwhile, EMC launched its tender offer for Data Domain shares on Tuesday. The tender offer expires on June 29.

Hopkinton, Mass.-based EMC is resilient in a bidding war, an analyst told Prospect News.

Other potential bidders such as Hewlett-Packard Co. and International Business Machines Corp. could emerge, but probably not, the analyst said.

"All kinds of different companies could pop up, but I don't think so," the analyst said.

Data Domain's stock gained 96 cents, or 3.04%, to close at $32.54 on Wednesday. The company provides deduplication storage appliances.

NetApp shares lost 77 cents, or 3.98%, to $18.57.

EMC shares fell 37 cents, or 2.88%, to close at $12.48. The company develops and supports information infrastructure technology.

NRG bid bump predicted

Exelon is expected to increase its bid for NRG Energy, a market source said Wednesday.

The hostile exchange offer for NRG expires on June 26.

The Chicago-based energy company has bid 0.485 of an Exelon share for each share of NRG in a deal valued at about $5.15 billion.

"Either NRG and Exelon agree to a definitive merger agreement or Exelon will walk," the market source said. "Exelon has strong economic incentives not to complete its current hostile tender offer for NRG."

Princeton, N.J.-based energy utility NRG has repeatedly rejected Exelon's offer.

At an analysts' presentation on May 27, NRG chief executive officer David Crane "indicated that NRG is open to [an] agreement," the source said. "The CEO's words could have been interpreted as expressing his willingness to strike [a] deal at around $30.00 per share."

NRG shares dropped $1.66, or 7.20%, to close Wednesday at $21.39.

Exelon's stock lost $1.70, or 3.50%, to $46.85.

Validus gains footing

IPC and Max Capital shareholders will vote on June 12 on the stock amalgamation valued at about $912 million.

RiskMetrics said in its report that the transaction with Max Capital "does not maximize shareholder value."

"We are gratified but not surprised by RiskMetrics' recommendation in light of the inferior value of the Max transaction and the disregard the IPC board has shown for its shareholders and its fiduciary obligations," Ed Noonan, Validus' chairman and CEO, said in a statement on Wednesday.

If shareholders reject the Max deal, Validus said it could close as early as June 26 on its exchange offer for IPC shares.

Validus has offered $3.00 in cash and 1.1234 Validus shares for each IPC share. The deal is valued at $30.58 per IPC share based on Validus' closing price on Tuesday.

Max Capital pointed out Wednesday that the other two leading proxy advisory firms, Proxy Governance, Inc. and Glass, Lewis & Co., support its combination with IPC because of value growth and diversification.

"The conclusion reached by [Riskmetrics'] ISS appears to be at odds with the reasoned analysis of Proxy Governance and Glass Lewis, as well as the positive feedback we have received from investors," W. Marston Becker, chairman and CEO of Max Capital, said in a statement.

Dean Evans, an analyst with Keefe, Bruyette & Woods, Inc., told Prospect News on Wednesday that RiskMetrics' report was a surprise.

"It definitely makes it a much tougher road for Max and IPC now," he said. "There are a lot of firms out there that just go by what the proxy adviser says to do."

However, it's not over, he said.

"While it's definitely going to hurt the chance of the IPC/Max deal passing, I don't think it's the nail in the coffin," Evans said. "Speaking with Validus management, they believe this is it - the Max/IPC deal is going to be voted down because of this."

Validus shouldn't declare a victory just yet, he said.

"A lot of shareholders have done their own due diligence on which deal they prefer," he said. "It's going to be a close vote."

Pembroke, Bermuda-based IPC's shares rose a penny, or 0.04%, to close Wednesday at $26.74.

Shares of Hamilton, Bermuda-based Validus fell 28 cents, or 1.14%, to close at $24.27.

Max Capital, which is also based in Hamilton, Bermuda, saw its stock lose 8 cents, or 0.47%, to close at $17.05.

Pepsi Bottling reaches for sky

Pepsi Bottling said Tuesday that it now expects annual profit of $2.30 to $2.40 a share, compared with a previous estimate of $2.20 to $2.30 a share.

The company also claimed that a combination with PepsiCo would give the company synergies of $750 million to $850 million a year.

"We continue to believe that PepsiCo will likely make a higher offer, as the offer, in our view, appeared low," Lauren Torres, an analyst with HSBC Securities (USA) Inc., said in a research note released Wednesday.

"Pepsi Bottling Group argues that PepsiCo's offer is the equivalent of an all stock deal, given that Pepsi Bottling Group will not be able to meaningfully participate in any synergy upside," she said.

Purchase, N.Y.-based PepsiCo, which owns 33% of Somers, N.Y.-based Pepsi Bottling Group and 43% of Minneapolis-based PepsiAmericas, Inc., offered to pay cash and stock valued at $29.50 a share for Pepsi Bottling and $23.27 a share for PepsiAmericas.

Both bottlers rejected the bids as too low.

PepsiCo said on Tuesday that its offer is fair and criticized Pepsi Bottling's synergy projections.

Torres also said she was surprised at the high synergy estimate.

"We find Pepsi Bottling Group's valuation of its shares to be rather high, and find it difficult to reach the bottler's projected synergy targets," she said.

Pepsi Bottling shares closed down 71 cents, or 2.09%, at $33.28 on Wednesday.

Shares of PepsiAmericas lost 35 cents, or 1.30%, to $26.57.

PepsiCo's stock fell 65 cents, or 1.18%, to close at $54.27.

Mentioned in this article:

Data Domain, Inc. Nasdaq: DDUP

EMC Corp. NYSE: EMC

Exelon Corp. NYSE: EXC

IPC Holdings, Ltd. Nasdaq: IPCR

Max Capital Group Ltd. Nasdaq: MXGL

NetApp Inc. Nasdaq: NTAP

NRG Energy, Inc. NYSE: NRG

PepsiAmericas, Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

Validus Holdings, Ltd. NYSE: VR

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