EMC Makes $213M Iomega Move

ORLANDO, Fla. -- EMC has flashed its cash again, throwing down $213 million to get its hands on publicly traded removable media specialist Iomega.

The offer follows an intense triple round of negotiations in which Iomegas valuation has risen more than $30 million, pointing up EMC’s desire to break into the consumer storage market.

Last month, after its initial $178.1 million offer for Iomega was rebuffed, EMC upped its bid to $205.5 million, although it was ultimately pushed up to last night’s figure of $213 million.

In a statement released after the markets closed last night, EMC announced a “definitive agreement” to acquire Iomega in a cash tender offer of $3.85 per outstanding share, or approximately $213 million.

EMC intends to start the tender offer in the next two weeks, with completion of the offer expected in the second quarter of 2008."Iomega will play a key role in EMC's strategy to expand our information storage and management capabilities deeper into the high-growth consumer and small business markets,” said EMC CEO Joe Tucci, in last night’s statement.

With EMC keen to open up new business opportunities outside of its traditional enterprise customer base, Iomega will form the nucleus of EMC’s new Consumer/Small Business Products Division.

Iomega's 230-strong workforce will now become part of EMC, according to Barry Ader, EMC's senior director of storage platform product marketing. "We're pretty excited bringing in the consumer and small business knowledge that they have," he said.

"We would like to retain the Iomega brand as the foundation for consumer business division," he said, explaining that both EMC's Retrospect and Lifeline products will be added to the Iomega platform.

Former Iomega CEO Jonathan Huberman will be heavily involved in this effort, and has already signed up to lead EMC's new consumer division. In his new role, the former Iomega chief will report to Joel Schwartz, senior vice president and general manager for EMC storage platforms.Iomega, which already embeds EMC’s Retrospect backup software in its external drives, is just the latest in a string of recent acquisitions by the Hopkinton, Mass.-based vendor, which include the purchase of WysDM, Conchango, Infra, Pi, Document Sciences, and online backup specialist Mozy, which was bought for $76 million last year.

"We believe EMC wanted Iomega's distribution channel, recognizable consumer brand name and a quick path to market given the rapid success of external hard-drive based storage devices such as WDC's MyBook and MyPassport," wrote RW Baird analyst Jayson Noland, in a note released this morning.

"EMC may attempt to leverage their recently formed Cloud Infrastructure and Services division, which is comprised of recent acquisitions Pi (personal information management) and Mozy (on-line backup)," he added.

Chinese plan terminated

EMC and Iomega also appear to have come to an agreement concerning Chinese storage components specialist ExcelStor, a potential EMC competitor in the consumer space. Iomega had committed to buy ExcelStor last December, although the share purchase deal has now been terminated, according to a statement released by Iomega last night.

"The Purchase Agreement between Iomega, ExcelStor, and the Selling Shareholders is no longer in force and effect," it said. "Concurrent with the termination of the Purchase Agreement, and as separately announced today, Iomega entered into an agreement and plan of merger with EMC."Iomega's statement also provided a clue as to the vendor's $213 million valuation.

"In accordance with the terms of the [ExcelStor] Purchase Agreement, Iomega has paid the Selling Shareholders a termination fee of $7.5 million," it said. Tellingly, $7.5 million is the exact difference between EMC's previous bid for Iomega of $205.5 million and the $213 million deal announced today.

"If we were going to go ahead on the acquisition with Iomega, they needed to get out of their agreement with ExcelStor," said Ader. "We wanted Iomega, that was the piece of the business that we were interested in."

M&A involving Chinese technology firms is not always straightforward in the current economic and political climate, whch may have prompted EMC to push for a termination of the Iomega/ExcelStor deal.

Last month, for example, Chinese technology giant Huawei’s attempt to grab a 21.5 percent stake in U.S. networking specialist 3Com was finally derailed in the face of intense pressure from the American government.Under the terms of the original Iomega/ExcelStor deal, ExcelStor’s Chinese parent, Great Wall Technology Company Ltd. (GWT), would have owned 43 percent of Iomega's common stock. In turn, about 62 percent of GWT is owned indirectly by state-owned China Electronics Corp., a $16 billion operation with interests in telecommunications, consumer electronics, and software development.

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