EMC expected to take Data Domain; Natco buyout faces small snag; Time Inc. spinoff predicted

By Cristal Cody

Tupelo, Miss., June 2 - A short bidding war is predicted for Data Domain, Inc. because the other suitor is not as cash-heavy as surprise bidder EMC Corp., an analyst told Prospect News on Tuesday.

Also on Tuesday, Pepsi Bottling Group Inc. offered more justification for its rejection of PepsiCo, Inc.'s buyout offer after the bottler increased its annual earnings outlook, an analyst said in an interview.

In other deals, Cameron International Corp.'s $780 million stock acquisition of Natco Group Inc. includes a slight business overlap, an analyst told Prospect News on Tuesday.

Meanwhile, as Time Warner Inc. structures its AOL LLC separation, a market source said Tuesday that the media giant's "publishing could be next to go."

On Wall Street, stocks continued a positive streak. The Dow Jones Industrial Average rose 19.43 points, or 0.22%, to close at 8,740.87.

The Standard & Poor's 500 index added 1.87 points, or 0.20%, to 944.74, while the Nasdaq Composite index added 8.12 points, or 0.44%, to close at 1,836.80.

Data Domain attraction rises

EMC bid $1.8 billion, or $30.00 a share, late Monday for Data Domain to best the $1.5 billion, or $25.00 a share, deal Data Domain struck with NetApp Inc. on May 20.

NetApp and Data Domain representatives did not return calls for comment.

Data Domain shares jumped $5.23, or 19.85%, to close Tuesday at $31.58 to set a fresh high.

Hopkinton, Mass.-based EMC said in a statement that its offer would be financed with existing cash and it will "promptly" commence a tender offer for Data Domain shares.

Mark Kelleher, senior analyst with Brigantine Advisors LLC, told Prospect News on Tuesday that NetApp probably could not afford a bidding war with EMC.

"I don't think NetApp has the financial resources or the inclination to up the offer," he said. "If NetApp has to [re-bid], it's going to take all of their cash to do it and EMC could simply up the bid. EMC has a lot of cash."

EMC's cash offer represents a 20.00% premium to the cash-and-stock offer made by NetApp, a Sunnyvale, Calif.-based data storage company.

NetApp's offer includes $11.45 in cash and 0.75 of a share of NetApp for each share of Data Domain, a Santa Clara, Calif.-based data backup provider.

NetApp's stock lost $1.35, or 6.52%, to close at $19.34 on Tuesday.

EMC shares added 43 cents, or 3.46%, to $12.85. The company develops information infrastructure technology.

Pepsi Bottling touts value

Pepsi Bottling, PepsiCo's largest bottler, pointed out Tuesday that PepsiCo "cannot acquire or increase interest in PBG without the approval of the PBG board of directors."

Purchase, N.Y.-based PepsiCo currently owns 33% of Pepsi Bottling and 43% of PepsiAmericas.

The soft drink maker offered to pay cash and stock valued at $29.50 a share for Somers, N.Y.-based Pepsi Bottling and $23.27 a share for smaller bottler Minneapolis-based PepsiAmericas, Inc., but it was rejected by both companies.

PepsiCo stuck to its offer in a statement Tuesday and said there is "no justification for the estimates" Pepsi Bottling released of potential annual synergies of $750 million to $850 million post-merger.

"PepsiCo has a track record of being a disciplined buyer and will maintain that disciplined approach in this transaction," the company said.

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

The second-quarter outlook also was bumped to 70 cents to 74 cents a share from 65 cents to 69 cents a share.

"It just gives investors some inclination to believe the offer was low," an analyst told Prospect News on Tuesday. "The guidance for the year is higher so it puts them in a more positive light short-term, but it also puts more light behind the combined entity's synergy savings."

Pepsi Bottling shares gained 96 cents, or 2.89%, to close at $34.17 on Tuesday.

Shares of PepsiAmericas rose 58 cents, or 2.20%, to $26.92.

PepsiCo's stock closed up $2.24, or 4.22%, at $55.37.

Oil, gas services combine

Under the agreement with Cameron, Natco shareholders would receive 1.185 shares of Cameron stock for each of Natco's 20.30 million shares outstanding.

The deal to combine the Houston-based oil and gas equipment and service suppliers is expected to close during the third quarter of 2009.

Natco chairman and chief executive officer John U. Clarke said on a conference call Tuesday that the "board is squarely behind this transaction. I look forward to a favorable vote on the transaction later this summer."

The deal must be approved by Natco shareholders and receive Hart-Scott-Rodino antitrust clearance.

Clarke said Natco did not negotiate with other potential suitors.

"From Natco's perspective, we were not for sale. This was not a sale process," he said on the call. "We believe this is a strategic combination that makes good sense for shareholders over time. We had no interest in pursuing a cash transaction because we were not for sale."

Neal Dingmann, an analyst with Wunderlich Securities, Inc., said in an interview Tuesday that the transaction includes some overlap with Cameron's Petreco Process Systems division.

"They are going to take a hard look, but I don't see it as not passing because of this," he said of regulatory reviews. "They might have to divest something small."

No other bidders are likely to emerge for Natco, Dingmann said.

"Probably not in this market," he said. "Given market conditions, I would call this a fair price. I don't anticipate any additional higher bidders."

Natco's stock closed up $4.97, or 16.02%, at $36.00 on Tuesday.

Cameron shares fell $1.65, or 5.08%, to close at $30.80.

Time magazine spinoff next?

Time Warner expects to separate AOL by the end of the year and completed its spinoff of Time Warner Cable Inc. into a stand-alone public company earlier this year.

"Unlike many of its media peers, we believe [CEO] Jeff Bewkes and the Time Warner board of directors have no emotional attachment to the assets within Time Warner," a market source said Tuesday.

"In turn, we would not be surprised to see Time Warner seek a separation or sale of its publishing division following the AOL spin."

The company, under its Time Inc. division, is the largest magazine publisher in the United States with titles that include People and Sports Illustrated.

By the end of the year, the media giant will have an estimated $7 billion in cash. Time Warner may pursue "expensive acquisitions," but the company is more likely to resume its share buyback program, the source said.

"Time Warner management is unlikely to see a major acquisition over the next 12-18 months, given its current focus on rebuilding credibility with investors," the source said.

Time Warner's stock rose 59 cents, or 2.46%, to close at $24.60 on Tuesday.

Shares of Time Warner Cable added 61 cents, or 2.00%, to $31.05.

Mentioned in this article:

Cameron International Corp. NYSE: CAM

Data Domain, Inc. Nasdaq: DDUP

EMC Corp. NYSE: EMC

Natco Group Inc. NYSE: NTG

NetApp Inc. Nasdaq: NTAP

PepsiAmericas, Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

Time Warner Cable Inc. NYSE: TWC

Time Warner Inc. NYSE: TWX

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