Business Context and Reporting Period
Company: NetApp, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 20, 2009
Event: Entry into a Material Definitive Agreement for the acquisition of Data Domain, Inc.
On May 20, 2009, NetApp, Inc. entered into an Agreement and Plan of Merger to acquire Data Domain, Inc. Upon closing, Data Domain will become a wholly-owned subsidiary of NetApp. The transaction is expected to close within 60 to 120 days, subject to customary closing conditions including regulatory approvals and Data Domain stockholder adoption.
Key Financial Metrics and Transaction Terms
This filing details the structure of the acquisition rather than NetApp's operational financial performance. Key financial terms of the transaction include:
- Cash Consideration: $11.45 per share of Data Domain common stock.
- Stock Consideration: Variable exchange ratio based on NetApp's "Closing Average" stock price:
- 0.833 shares of NetApp stock if Closing Average is less than $16.26.
- 0.682 shares of NetApp stock if Closing Average is greater than $19.88.
- Formula-based ratio ($13.55 divided by Closing Average) if Closing Average is between $16.26 and $19.88.
- Stock Cap: If the total stock consideration exceeds 19.5% of NetApp's outstanding shares pre-closing, the stock portion will be reduced and the cash portion increased accordingly.
- Break-up Fee: Data Domain is required to pay NetApp $57,000,000 under certain termination circumstances.
Operational Metrics: The filing text does not provide a clear value for NetApp's revenue, profit, cash flow, margins, debt, or liquidity for the reporting period.
Material Changes and Conditions
The primary material change is the pending acquisition of Data Domain. The transaction is subject to the following conditions:
- Adoption of the Merger Agreement by Data Domain stockholders.
- Absence of laws or orders prohibiting the merger.
- Expiration of the Hart-Scott-Rodino waiting period and receipt of other regulatory approvals.
Data Domain has agreed to refrain from soliciting alternative business combination proposals during the interim period.
Guidance, Outlook, and Risks
Management Commentary: The boards of directors of both NetApp and Data Domain have approved the merger. Data Domain directors and executive officers, representing approximately 22.0% of outstanding capital stock, have entered into voting agreements to support the transaction.
Risks and Contingencies:
- Regulatory Risk: Closing is contingent on regulatory approvals.
- Tax Status: The parties can make no assurances that the transaction will qualify as a tax-free reorganization under the Internal Revenue Code.
- Stock Price Volatility: The final consideration mix (cash vs. stock) depends on NetApp's stock price prior to closing.
- Termination Risk: The agreement may be terminated under specific circumstances, potentially triggering the $57 million break-up fee.
Important Facts for Investor Verification
- Verify the final consideration mix (cash vs. stock) once the "Closing Average" of NetApp stock is determined.
- Monitor the status of regulatory approvals and the Hart-Scott-Rodino waiting period.
- Review the upcoming Registration Statement on Form S-4 and Proxy Statement/Prospectus for detailed financial data and risk factors.
- Confirm the tax treatment of the transaction for shareholders.
- Check for any updates regarding the 19.5% stock issuance cap and potential adjustments to cash consideration.