Lawsuits fly as EMC and NetApp fight for Data Domain

The ongoing battle between EMC and NetApp to acquire Data Domain has taken a new turn with two legal challenges that could further muddy the waters.

EMC outbid NetApp's original offer of US$1.5bn for the data deduplication vendor with a bid of $1.8bn, but was trumped by a counteroffer from NetApp of US$1.9bn.

EMC insists that its offer is superior based on stock valuations, and has asked the Federal Trade Commission to examine the bid.

However, two new lawsuits threaten to complicate the process further. Legal firm Levi & Korsinsky has filed a class action suit against the directors of Data Domain, asserting that its acceptance of the NetApp bid was not in the best interests of shareholders.

"Data Domain's shareholders would receive US$30 [per share] to be paid in a combination of cash and NetApp stock," the legal firm said.

"In addition, NetApp offered positions on its board to certain Data Domain officers, and there are rumours that Data Domain chief executive [Frank] Slootman could be the next chief executive of NetApp. This raises questions as to whether the sales process conducted by the board was fair and open."

In addition, the Detroit Police & Fire Retirement System has filed a separate lawsuit regarding the takeover.

"Data Domain's board of directors violated their fiduciary duties by approving the original and restructured deals with NetApp, both of which give NetApp an improper bidding advantage in the form of a termination fee, a no-shop/no-talk provision and matching rights," said law firm Bernstein Litowitz Berger & Grossmann in a statement.

"The board granted each of these deal protections before any value-maximising process took place in a blatant effort to ensure that their favoured merger partner is Data Domain's ultimate acquirer."

Data Domain is such a prize because of its success in the field of eliminating data duplication, which is becoming a major storage problem.

As backups are made more frequently, the amount of largely useless duplicated data grows.

For example, if a manager sends a PowerPoint presentation to 20 colleagues via email all of them are backed up.

Being able to eliminate all but one frees up 95 per cent of the space the files would otherwise have occupied, necessitating less investment in storage.