Why won’t Iomega take EMC’s offer?

Because ExcelStor offers a break-out-of-the-storage-niche chance

Iomega has turned down EMC’s $178 million takeover offer. Why? CEO Jonathan Huberman and his team could cash in big time and end up running a new business unit inside EMC. “No”, they said. Again, why?

A few years ago Iomega was fading. The background was that Iomega’s post-ZIP drive transition to something else was not going well. In July, 2005, it underwent a restructuring and appointed a new CFO. In February, 2006, CEO Werner Heid retired. Jonathan Huberman was the incoming CEO, and there was another new CFO as well. New blood was needed. Iomega’s chairman, Stephen David, said at the time: “The transition of Iomega from its Zip product line, as Zip reaches the end of its technology lifecycle, to new market segments and innovative products has been a very difficult management challenge.”

What Huberman saw was a terrific brand name and a great channel to SOHO and SME businesses. There were two potential disk-based Zip disk replacements: REV and DCT. The latter was dropped. Iomega focussed on REV, on its network-attached storage (NAS) line and, in October 2006, expanded into online services with OfficeScreen, a managed virtual private network service it obtained through buying CSCI earlier that year.

REV’s roadmap was followed. Costs were cut and Iomega became profitable. Suppositions about the company being sold were proved wrong.

Iomega became a distributor of EMC-acquired Dantz Retrospect SME backup software. It also signed up to distribute EMC’s home NAS product, Lifeline.

In December, 2007 it introduced NeverDown backup and recovery software with data targets including Iomega’s line of external eSATA devices.

Next came the ExcelStor deal. You can view the presentation slides on this here.

At this time, the end of 2007, a Chinese company, Great Wall Technology, owned about 43 percent of Iomega, whose shares are publicly traded on the New York Stock Exchange. GWT has a subsidiary, ExcelStor, which has a large channel in China and which makes single platter 3.5-inch disk drives. It happens to make Iomega’s REV drives as well.

It produces more than 20 milion drives a year and has a strong OEM relationship with a major hard drive company – which surely means one of Seagate, Western Digital, Hitachi GST or ?

The idea is to combine Iomega’s global brand and channels with ExcelStor’s manufacturing and Chinese market access. Iomega only has 2 percent of its sales going into China, which is one of the world’s fastest-growing markets.

ExcelStor is a subsidiary of GWT which has lots of other subsidiaries and is a subsidiary in turn of conglomerate China Electronics Corporatio (CEC), owned by the Chinese government. Huberman’s team spot the possibility of selling ExcelStor/GWT/CEC products through the Iomega channel to the world outside China.

These products include monitors, LCD TVs, software, semiconductors, MP3 players, other consumer electronics devices, PCs, notebooks, servers, cell phones and PDAs.

The deal would enable manufacturing synergies and organisational efficiencies and Iomega’s shareholder value should rise significantly as revenues rise.

The EMC deal doesn’t offer any of this. It offers continuance as a storage and storage service/security service concern but none of the exciting, the really exciting use-my-brand to sell multiple kinds of intelligent devices to my existing markets and have access for current Iomega products and services to the holy grail of growing markets – China.

Besides this the EMC offer, as well as being unwelcome, didn’t offer the upside that the ExcelStor acquisition offers. On this interpretation EMC will have to substantially upgrade its offer.

It looks like another offer may come: Dave Farmer, an EMC spokesperson, is reported to have said: “We extended a compelling offer, and we’re disappointed with the decision of Iomega’s board. We’re looking forward to further discussions with Iomega.”

If IOmega still says no and EMC really wants a removable hard drive business, Imation’s Ulysses and Odyssey products might be worth looking at. But it could also go and have a look at ProStor and its RDX product.

As Dell OEMs that, it would strengthen the EMC-Dell relationship which appears to have been weakened over the long haul by Dell’s EqualLogic acquisition.

Watch this space.

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