Quantum buys ADIC for $770M
Quantum Corp. announced Tuesday night that it
plans to acquire Advanced Digital Information Corp. (ADIC) for approximately
$770 million, with the goal of creating the largest independent company
specializing in backup, recovery and archiving products.
With combined revenues of over $1.2 billion
over the last four quarters, "The new company will have an enormous set of
offerings, the scale, footprint and financial foundation to really have an
impact in the data protection market," said Steve Duplessie, founder and senior
analyst with the Enterprise Strategy Group.
He added that StorageTek (STK) and IBM "still
rule the high end, while Overland Storage Inc. hangs down low." Adding that
"both [Quantum
and ADIC] are in the midmarket and now get some economic advantages." The merger
also makes them a "legitimate third-party alternative to STK or IBM," he said.
Rick Belluzzo, chairman and CEO of
Quantum, and who will hold the same
position in the combined organization, said that creating a larger company in
the backup and archiving market that's independent is great for users. "There is
a void there that nobody fills today … We're a good alternative for companies
that want to innovate and embrace new technologies and work in a heterogeneous
environment."
He added, "It was always a challenge to provide
global support as standalone companies -- combined we can build that support."
He mentioned the often "difficult and constrained" situation that
Quantum and ADIC faced in selling to OEMs.
"They hold all the cards," he said. "This deal helps us break out … It does it
better for us than any situation we could see in the market place."
It does mean less competition in the market,
however, but that's a fair tradeoff, according to Bob Abraham, founder and
analyst with Freeman Reports. "There's less competition, but one much stronger
company with a much broader repertoire of product offerings, great support and
technical capability," he said.
He noted that any overlap between the product
lines will be around their midrange and low-end tape libraries. "Both companies
have aging products -- the natural attrition of these might be accelerated," he
said. Meanwhile,
Quantum's disk-based backup product, the DX
Series, is more of a low-end system, while ADIC's PathLight is a high-end
product with a fairly sophisticated file system. "Where both are most successful
in this space, they don't compete," Abraham said. Quantum's DX Series showed
solid growth up 23% sequentially in the fourth quarter, which ended March 31,
2006.
Robert Stevenson, managing director of storage
research at TheInfoPro, said the deal is bad news for Sun Microsystems Inc. but
good news for the midmarket. "ADIC has been gaining traction in our [latest]
research, winning business from Sun as has
Quantum." He added, "If they can extend their
VTL [virtual tape library] capabilities with deduplication technology and
improve on the scalability while also maintaining a low-cost DLT solution, it is
a very attractive alternative to Sun." The key going forward will be
incorporating a WAFS component into their products and embedding data encryption
capabilities, he said.
During a conference call with financial
analysts,
Quantum's Belluzzo was asked how he viewed
ADIC's reseller relationship with EMC Corp. "We view the EMC relationship as
very strategic. That's the way it's operated inside ADIC. We intend to
capitalize on that," he said. EMC has been reselling ADIC tape libraries since
June 2004.
Financial details
Under the terms of the deal, shareholders of
Redmond, Wash.-based ADIC will receive $12.25 per share in cash, or about 3.5
shares of
Quantum for each share of ADIC, instead of
cash.
The transaction is expected to be approximately
15 cents accretive to
Quantum on a cash earnings per share basis,
with annual cost savings of approximately $45 million in the first full year of
combined operations, Quantum anticipates.
Based on the overlap of the two companies'
businesses, savings are expected to come primarily from economies of scale and
manufacturing efficiencies in cost of goods sold, reduction of duplicative
operating expenses and sharing of research and development, and marketing costs.
Belluzzo said he expects few redundancies.