EMC Makes a Play for Iomega

EMC has made an offer to acquire Iomega, its latest play for dominance in the fast-growing consumer and small business storage market.

Iomega has rejected EMC’s offer as inadequate, while EMC is suggesting it’s open to further discussions between the two.

EMC offered $3.25 a share for publicly-traded Iomega, a 22 percent premium to Friday’s close. The offer values Iomega at about $178 million. Iomega’s board met yesterday and rejected the offer, saying it does not “constitute a superior proposal” to its December agreement to acquire ExcelStor Group. Iomega plans to issue 84 million shares to fund that acquisition.

“The board reached its conclusion based upon valuation and the board’s view that the proposed due diligence contingencies were overly broad,” Iomega said in a statement.

EMC said in a statement that “The proposed acquisition of Iomega is consistent with EMC’s evolving strategy for serving the consumer and small business markets. We believe we extended a compelling offer, and we’re disappointed with the decision of Iomega’s board.”

Asked if EMC has any plans to raise its offer, a company spokesman said, “We look forward to opening up a further dialogue with Iomega’s management team and its board.”

Iomega, which made a name for itself in the zip drive market, has expanded over the years to offer external hard drives, networked storage and online backup, among other services. It even resells EMC’s Retrospect backup software.

By one measure, Iomega appears to be a bargain at current prices. At 10 times estimated earnings and 0.43 times trailing 12-month sales, it is significantly cheaper than the S&P 500.

EMC has been moving aggressively into the consumer and small business markets, noting that more than 70 percent of all data is being created by individuals.

Greg Schulz, founder and senior analyst of the StorageIO group, said EMC’s interest in Iomega is about removable hard disk drives, small office/home office environments (SOHO) and small and mid-sized businesses, including entry-level NAS offerings and other solutions and services that “would fill a gap below the EMC Celerra NAS market … where even low-cost iSCSI can be seen as too big and expensive.”

EMC’s interest could even extend into digital home environments, “which by sheer size dwarfs the high-end data center, granted in volume and not necessarily margin,” said Schulz.

“For a company like EMC, which is a household name in the enterprise, what better way to get far-reaching DNA, including brand name, channel presences and partners, and existing product lineup that can also serve as a vehicle for rolling out EMC software?” said Schulz.

Schulz said EMC’s play for Iomega could put other companies like Adaptec, SimpleTech and Buffalo Technology into play.

Also today, EMC announced the acquisition of Infra Corporation Pty Limited, a
provider of automated IT Service Management (ITSM) software.

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