News

posted on 10 March 2008 14:57

Out of the blue EMC has offered $178.1 million to buy Iomega, the supplier of REV removable hard drive storage and network-attached storage (NAS) products.

That's $3.25 a share and a 22 percent premium over the current share price.

It represents a terrific complement to Iomega's executive team, led by Jonathan Huberman (pictured) because the company was fading quite fast a couple of years ago as its Zip drive product standby was falling in popularity and replacement products didn't generate enough revenue to replace lost Zip drive revenue.

The REV technology and the popular low-end NAS products have turned the company around.

Iomega has rejected the offer. That's because Iomega is in the process of becoming a subsidiary of the Chinese government.

It's a complex deal. Iomega is a subsidiary of China's Great Wall Technology (GWT) which has a subsidiary called ExcelStor Group. In December Iomega arranged to buy the ExcelStor Group in an all-stock deal by issuing 84 million shares in exchange for all ExcelStor's outstanding stock.

GWT is a subsidiary of the China Electronics Group, a conglomerate which is owned by the CHinese government.

When the proposed ExcelStor deal completes the majority 43 percent stake in Iomega would be held by GWT. The Iomega board said that the EMC bid did not offer a better arrangement that the GWT one. The phrasing used was that it "would not reasonably constitute a superior proposal” which can be interpreted as leaving the door open to an improved offer. 

Why should EMC want to buy Iomega? It is consistent with its aim of earning more storage revenue from the small and medium enterprise market. Certainly EMC does not offer removable hard drive products. Dell, possibly its most important partner in the SME space, does offer ProStore's RDX removable disk drive products and is having some success with them.

The bid suggests that the removable disk drive market is set for steady growth, probably at the expense of entry-level tape products which would, correspondingly, be set for accelerated decline.

[Chris Mellor.]