Validus considers future buys; NetApp faces prospects; Broadcom unlikely to stop deal hunt

By Cristal Cody

Tupelo, Miss., July 9 - IPC Holdings, Ltd.'s decision to partner with Validus Holdings, Ltd. over a higher offer from Flagstone Reinsurance Holdings Ltd. left several analysts and investors scratching their heads on Thursday.

Validus chairman and chief executive officer Ed Noonan said the combined company's $3.40 billion in equity could be used for deals.

"It may mean hiring highly skilled people to open up shop in Latin America or from time to time it may suggest there is an acquisition," Noonan said on a conference call with analysts and investors. "It's purely situational."

Now that EMC Corp. has won the bidding over Data Domain, Inc., NetApp Inc.'s options are to grow internally or acquire private vendors, an analyst told Prospect News on Thursday.

Meanwhile on Thursday, shares of Emulex Corp. slid after the company rejected a buyout offer from Broadcom Corp., which likely will go after other situations, an analyst said in an interview.

On Wall Street, equities got a slight lift from investments in financial and industrial stocks.

The Dow Jones Industrial Average rose 4.76 points, or 0.06%, to close at 8,183.17.

The Standard & Poor's 500 index added 3.12 points, or 0.35%, to 882.68, and the Nasdaq Composite index closed up 5.38 points, or 0.31%, at 1,752.55 on Thursday.

IPC picks partner

While Validus sweetened its offer to persuade IPC's board, the offer is still below Flagstone's bid.

Validus increased its bid to $7.50 in cash and 0.9727 of a share of Validus for each IPC share over its earlier "best" bid made on Monday of 1.1234 shares of Validus and $3.75 in cash for each IPC share.

The $1.65 billion deal gives IPC shareholders a value of $29.48 per share based on Validus' Wednesday closing price of $22.60.

Flagstone had offered $5.50 in cash and 2.638 shares for each share of IPC for a deal value of about $1.74 billion, or $31.17 a share.

Doug Mewhirter, an analyst with RBC Capital Markets Corp., told Prospect News on Thursday that IPC's decision surprised market observers.

"There was more money on the table from Flagstone," he said. "IPC may have perceived Flagstone as a little too small. They were trying to increase their capital base, which was half the reason they put themselves up for sale. Flagstone has a lot less money than Validus does."

IPC interim CEO John Weale said on the conference call with analysts and investors on Thursday that the board considered other proposals for the Hamilton, Bermuda-based reinsurer.

"We looked at the full range of alternatives," Weale said. "We received a number of offers that became publicly known and offers known only to the company. Validus was the best way to provide the best value to our shareholders."

Flagstone appears set to drop the matter.

Flagstone chairman Mark Byrne said in a statement Thursday that his company's proposal offered "superior economics in the short term, and better prospects in the long term" but the company would "close the file on this matter."

Shareholders of IPC and Validus must approve the transaction, which the companies expect to close in the third quarter.

IPC shareholders may like the offer from Validus because the merger can close within seven to 10 weeks, Mewhirter said.

"I don't think it will be an enthusiastic yes vote, but I think they will vote for the deal," he said. "Just to get certainty down."

IPC shares rose 9 cents, or 0.33%, to close at $27.70.

Shares of Validus slipped 83 cents, or 3.67%, to $21.77.

Flagstone's stock gained 43 cents, or 4.42%, to end at $10.16.

NetApp misses boat

NetApp shares closed up 62 cents, or 3.37%, at $19.01 on Thursday after the company ended the bidding war with EMC over Data Domain.

Data Domain accepted EMC's offer of $2.10 billion, or $33.50 a share, in cash after the market closed on Wednesday.

Santa Clara, Calif.-based Data Domain, a data network storage developer, had first struck a $30.00-a-share cash-and-stock deal with NetApp but was outbid by EMC, a Hopkinton, Mass.-based information technology firm.

Sunnyvale, Calif.-based data software developer NetApp might find other transactions, but none as good as what Data Domain could provide, Rahul Khanwalkar, a researcher with Jefferies & Co., told Prospect News on Thursday.

"They can look at some other private companies, but at the same time, DDUP was by far the premium vendor," he said. "Now, NetApp's best option is to develop organically. Maybe they will build up something and in time, it could itself be an acquisition target."

Data Domain's stock fell 46 cents, or 1.36%, to $33.44.

EMC shares added 24 cents, or 1.92%, to close at $12.76.

Broadcom walks

Emulex's board said the cash bid of $912.36 million, or $11.00 a share, from Broadcom undervalued the company's long-term prospects.

Shares of Emulex closed down 76 cents, or 7.84%, at $8.94 on Thursday.

"Somebody offers you $11.00 cash - they withdraw the offer and the stock is down to $8.88 right now. If I were an Emulex stockholder, I would not be happy," David Wu, an analyst with Global Crown Capital, LLC, said in an interview on Thursday.

Broadcom said in a statement that the Irvine, Calif.-based semiconductor manufacturer will let its tender offer for Emulex stock expire on July 14 after Emulex rejected the bid.

Broadcom hinted that it would look at other potential transactions.

"Although we were unable to negotiate an expeditious and friendly transaction at a price that makes sense to us given the expectations set by the Emulex board, there are other value-creating alternatives that we will now turn our attention to," Scott A. McGregor, president and CEO of Broadcom, said in a statement.

Broadcom likely will go after other deals, Wu said.

"All the malls are open. This is not the only shop that's selling anything," he said of Emulex.

Broadcom shares gained 96 cents, or 4.11%, to close at $24.31 on Thursday.

Mentioned in this article:

Broadcom Corp. Nasdaq: BRCM

Data Domain, Inc. Nasdaq: DDUP

EMC Corp. NYSE: EMC

Emulex Corp. NYSE: ELX

Flagstone Reinsurance Holdings Ltd. NYSE: FSR

IPC Holdings, Ltd. Nasdaq: IPCR

NetApp Inc. Nasdaq: NTAP

Validus Holdings, Ltd. NYSE: VR

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