June 18, 2009 (11:40a) - HSR Status (EMC)

EMC has announced the withdrawal and refiling of the required HSR notification associated with its offer for DDUP. This is a somewhat unusual step as the initial notification was submitted just four days ago (6/15).

Presumably, EMC was notified in advance, or discovered on its own, that additional details and/or time would be required by the FTC in assessing the implications of a DDUP-EMC combination, as opposed to the proposed DDUP-NTAP combination. As the current FTC/DOJ has clearly shown a greater propensity for interest in merger transactions so far, this development should not come as a major surprise.

With respect to the HSR review involving EMC, we have yet to locate any relevant information to suggest that a DDUP-EMC combination actually presents substantial competition issues. Granted, EMC is the established leader in the overall data storage industry, but its command of the market has been seriously compromised by major players such as IBM and Hewlett Packard, among others, in the last few years. With DDUP being essentially a second-tier, albeit a critical second tier, player, any scenario involving DDUP being acquired simply will not adversely affect the overall data storage market.

For the record, DDUP cites the following as its competitors in the relevant markets:

In addition to competing with traditional providers of tape-based storage systems, such as Sun Microsystems, Inc., or Sun Microsystems, and Quantum Corporation, we compete with other established storage companies such as EMC Corporation, or EMC, and NetApp, Inc., or NetApp, and to a lesser extent Hitachi Data Systems Corporation, or HDS, Hewlett-Packard Company, or HP, and International Business Machines Corporation.

Whether or not EMC is essentially attempting to prevent NTAP from approaching the top-tier among storage providers is irrelevant from an antitrust standpoint. That must be viewed as a sound and inevitable business strategy, regardless of NTAP's public claims of competition issues. The bottom line where the FTC review is concerned is that DDUP's change of control will not create a major competition issue in data storage as long as IBM, HP, Sun, and others remain viable options.

The following chart tends to support the above conclusions. Note that DDUP does not appear among the recognized top players in the key "External Controller-Based Disk Storage" market:

Company	1Q09 Market Share (%)	1Q08 Market Share (%)
EMC	23.2	24.6
IBM	11.1	11.5
Hitachi/HDS	10.6	10.2
HP	9.8	11.4
Dell	9.2	9.0
Network Appliance	8.5	8.4
Sun Microsystems	4.0	5.1
Others	23.7	19.8
Total	100.0	100.0

In short, if and when EMC increases its offer for DDUP, it is extremely unlikely that the HSR review will present major timing issues. Even with the concept of intensified antitrust scrutiny, a DDUP-EMC combination literally does not meet the criteria for an HSR second request.

June 18, 2009 (12:45p) - Preliminary Proxy Statement Filed (NTAP)

NTAP filed the first amended proxy statement for its merger agreement with DDUP with the SEC yesterday.

The key aspect to note with the SEC where NTAP is concerned is the rate at which the company is turning around comments from the regulatory. This clearly an effort to obtain SEC consent rapidly with the intent of scheduling the DDUP shareholder meeting as quickly as possible. Based on the initial two-week turn-around, it looks like NTAP hopes to get SEC consent by early-July, at the latest, which would facilitate and early-August DDUP shareholder meeting.

Nevertheless, the time required for the SEC process will provide EMC with ample time to assess DDUP shareholder sentiment and adjust its offer accordingly. Assuming the DDUP shareholder is set for the first week or two of August, EMC will very likely increase its current offer by the second or third week of July.