EMC expected to best NetApp; Flagstone pushes deal with IPC; shares fall on news of Quest deal

By Cristal Cody

Tupelo, Miss., July 6 - EMC Corp. on Monday raised its cash bid for Data Domain, Inc. to $33.50 a share, a move that effectively knocks NetApp, Inc. out of the bidding war, an analyst told Prospect News.

In other bidding wars, IPC Holdings, Ltd. could make a decision about which company it will partner with on Tuesday, executives of bidder Flagstone Reinsurance Holdings Ltd. said Monday.

Further consolidation in the reinsurance market is expected on the heels of Bermuda-based PartnerRe Ltd.'s announcement it will acquire Paris RE Holdings Ltd., a Swiss diversified reinsurer, an analyst told Prospect News on Monday.

Also on Monday, shares of Quest Energy Partners, LP fell 12 cents, or 8.22%, to close at $1.34 after a proposal was announced to recombine the firm with Quest Resource Corp. and Quest Resource's Quest Midstream Partners, LP. Shares of Quest Resource lost 3 cents, or 10.38%, to close at 30 cents.

Meanwhile, stocks were mixed on Monday.

The Dow Jones Industrial Average added 44.13 points, or 0.53%, to close at 8,324.87.

The Standard & Poor's 500 index rose 2.30 points, or 0.26%, to 898.72, while the Nasdaq Composite index lost 9.12 points, or 0.51%, to end at 1,787.40.

EMC has cash to spend

EMC said in a statement on Monday that its $33.50-a-share offer is "clearly superior" to NetApp's $30.00-a-share cash-and-stock proposal for Data Domain.

"EMC is prepared to close the transaction within two weeks, which is almost a month faster than the NetApp proposal," the Hopkinton, Mass.-based infrastructure technology firm said.

In a letter sent Monday to Data Domain chairman Aneel Bhusri, EMC chairman and chief executive officer Joe Tucci said the company has received strong support from Data Domain's investors and customers.

The Federal Trade Commission on Monday gave early antitrust clearance to the combination proposals from EMC and Sunnyvale, Calif.-based NetApp, a data management company.

Mark Kelleher, a senior analyst with Brigantine Advisors LLC, said in an interview on Monday that this probably is the highest offer forthcoming for Data Domain, a Santa Clara, Calif.-based technology information recovery firm.

"EMC just had to make an offer big enough so it differentiates itself from NetApp's offer," he said. "Now they're in the clear. I don't think NetApp is going to chase them. EMC has more cash than NetApp has."

EMC extended its tender offer for Data Domain shares to July 17. As of July 2, investors had tendered about 195,353 shares, or 0.32%, of Data Domain's outstanding stock.

Data Domain's stock gained 85 cents, or 2.56%, to close Monday at $34.06.

EMC shares rose 11 cents, or 0.86%, to $12.89.

NetApp's stock fell 11 cents, or 0.58%, to end at $18.85.

IPC reviews offers

Flagstone's offer for IPC has a current cash-and-stock value of $33.62 a share, while the bid from Validus Holdings, Ltd. has a value of $28.63 a share.

"They told us to expect [an answer] hopefully tomorrow," Flagstone executive chairman Mark Byrne said on a conference call with analysts on Monday. "We don't know if there are any other offers and what they might be."

Bermuda-based Flagstone Reinsurance offered on Wednesday to acquire IPC for $5.50 per share in cash and 2.638 Flagstone shares for each IPC share.

Byrne said on the call that Flagstone is "not in the need to do a deal category. We looked at dozens of things before we decided to make an offer on this one."

Flagstone has structured its offer for IPC, also of Bermuda, as a friendly bid as opposed to Validus' hostile efforts to replace IPC's board.

"We're not singing Kumbaya here, but we approached them in a cooperative effort," Byrne said. "The other competing offer would be our definition of not friendly."

Validus said in a statement Monday that its bid of 1.1234 shares and $3.75 in cash for each IPC share is the Bermuda reinsurer's "best and final offer."

Validus also said that it has extended its exchange offer for IPC shares to July 13. As of Thursday, about 9,190,039 IPC shares had been tendered, Validus said.

Kenneth Billingsley, an analyst with Signal Hill Group LLC, told Prospect News on Monday that more industry transactions are expected before the year's over.

"I don't think we're anywhere near the desperation stage right now, but I'm sure everybody is talking to each other now," he said. "We would expect more consolidation. Now that we're in hurricane season, there likely won't be as many deals announced until the season's over."

IPC shares lost 5 cents, or 0.18%, to close Monday at $28.22.

Flagstone's stock fell 23 cents, or 2.26%, to $9.95.

Shares of Validus jumped $1.07, or 4.83%, to close at $23.22.

Quest combo doesn't excite

Oklahoma City-based oil and gas firms Quest Energy, Quest Resource and Quest Midstream said Monday they will recombine through the creation of a new, publicly traded company that would own all three entities.

The new company, currently being called NewGasCo, will focus on development of coal bed methane in areas including Kansas and Oklahoma.

Under the terms, each share of Quest Resource would be exchanged for 0.0575 of a share of NewGasCo stock, and each unit of Quest Energy would be exchanged for 0.2859 of a share of NewGasCo.

The deal is subject to the arrangement of credit facilities for the new company, consents from existing lenders and shareholder approval.

The transaction is expected to close before the end of the year.

Mentioned in this article:

Data Domain, Inc. Nasdaq: DDUP

EMC Corp. NYSE: EMC

Flagstone Reinsurance Holdings Ltd. NYSE: FSR

IPC Holdings, Ltd. Nasdaq: IPCR

NetApp, Inc. Nasdaq: NTAP

Paris RE Holdings Ltd. Euronext: PRI

PartnerRe Ltd. NYSE: PRE

Quest Energy Partners, LP Nasdaq: QELP

Quest Resource Corp. Nasdaq: QRCP

Validus Holdings, Ltd. NYSE: VR

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