EMC To Buy Iomega In Small Biz, Consumer Storage Play

EMC and Iomega finally came to terms, with EMC agreeing to acquire Iomega for about $213 million.

EMC, of Hopkinton, Mass., and Iomega, the San Diego-based manufacturer of storage hardware for consumers and small- and mid-size businesses, have been talking about the possible acquisition

Iomega in mid-March said that EMC sent a revised, unsolicited, non-binding indication of interest to acquire Iomega for up to $3.75 per share. The offer came exactly one week after Iomega rejected an offer from EMC of $3.25 per share.

On Tuesday, EMC said Iomega agreed to a cash tender offer of $3.85 per outstanding share, or about $213 million.

Barry Ader, senior director of storage product marketing at EMC, said the proposed acquisition is a move by his company to be ready for an explosion in consumer-created content.

"About 70 percent of all storage is being created by individuals," Ader said. "EMC really wants to move into this exciting market of consumers and individuals."

EMC looked at Iomega and saw three things it liked about the company, Ader said. The first was its strong consumer brand, the second was a strong channel brand and presence in multiple channel, and the third was an existing relationship between the two companies.

Iomega is currently bundling EMC's LifeLine, a software for OEM vendors of NAS appliances. Intel, of Santa Clara, Calif., also bundles LifeLine with some of its NAS appliances. That relationship is not expected to change with the acquisition of Iomega, Ader said.

Jonathan Huberman, CEO of Iomega, will continue with the company after the acquisition, and is slated to lead EMC's new Consumer/Small Business Products division which will be centered around the Iomega offering. In that role, Huberman will report to Joel Schwartz, senior vice president and general manager of EMC storage platforms.

The new division will include EMC Retrospect and EMC LifeLine software. Retrospect came from EMC's acquisition of Dantz in October 2004. With the nearly $50 million deal, EMC obtained Dantz's Retrospect data protection software, including products for the Macintosh platform, and the software became the foundation from which EMC's Insignia small-business initiative was launched last February.

Huberman called the deal a great opportunity for Iomega shareholders, who can expect a 44 premium on their Iomega shares compared to when the two companies first went public about a possible acquisition.

Consumers and solution providers will also benefit from the acquisition as Iomega leverages EMC technology, including de-duplication, RSA security, and Mozy on-line backup, to better compete against competitors who are the same size as Iomega, as well as those who are considerably larger, Huberman said.

Despite all the rhetoric about the acquisition being a consumer storage play, Huberman said he hopes people don't get the idea that Iomega is ignoring the channel.

"We will also be able to offer a much more competitive offering to small businesses," he said. "And how do we get to small businesses? Through VARs."

Iomega also has a small but growing managed services business that started with the the July 2006 acquisition of CSCI, a managed service provider with ties to Google's Postini application.

It is still too early in the acquisition process to guess what will happen to Iomega's managed services business, Huberman said. "We believe there is a significant opportunity for selling services into the small business and consumer markets," he said. "EMC has Mozy. We will be looking at opportunities for integrating with Mozy."

Schwartz said that, from a broad EMC perspective, his company is moving into the consumer and small business markets from both a product and a managed services perspective.

"Then there's the possibility of tying the two together," Schwartz said. "We not religious on this. Whether they want to protect their data at home or in the office, or do it on-line, we're not religious. Instead, if you look at the entire spectrum of one or the other or both, no one is in a better position than we are."

EMC last October also acquired Berkeley Data Systems, the American Fork, Utah-based developer of the technology behind the Mozy online backup business. The company has since then raised the price of the Mozy service and tried to make it part of an overall managed services strategy for business customers called EMC Fortress.

Just prior to the news that EMC plans to acquire Iomega, Iomega said it is terminating an agreement originally unveiled in December to acquire ExcelStor Great Wall Technology, a China-based storage manufacturer. As a result of that move, Iomega will pay ExcelStor's selling shareholders a termination fee of $7.5 million.

EMC has also unveiled a storage device, the Storage Credenza, specifically for the China market using the LifeLine software.