SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9/A
Solicitation/Recommendation Statement
under Section 14(d)(4) of the
Securities Exchange Act of 1934
(Amendment No. 3)
Isilon Systems, Inc.
(Name of Subject Company)
Isilon Systems, Inc.
(Name of Person(s) Filing Statement)
Common Stock,
par value $0.00001 per share
(Title of Class of Securities)
46432L104
(CUSIP Number of Class of Securities)
Keenan M.
Conder
Vice President, General Counsel and Corporate Secretary
Isilon Systems, Inc.
3101 Western Avenue
Seattle, Washington 98121
(206) 315-7500
(Name, address and telephone number of person authorized to receive
notices and communications on behalf of the person(s) filing statement)
With copies to:
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Craig E. Sherman, Esq.
Wilson Sonsini Goodrich & Rosati
Professional
Corporation
701 Fifth Avenue
Suite 5100
Seattle, Washington 98104
(206) 883-2500
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Martin W. Korman, Esq.
Lawrence M. Chu, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
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¨
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Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
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This Amendment No. 3 amends and supplements the Solicitation/Recommendation Statement
on Schedule 14D-9 initially filed with the Securities and Exchange Commission (the SEC) on November 19, 2010, as amended by Amendment No. 1 thereto filed with the SEC on December 2, 2010 and as amended by Amendment
No. 2 thereto filed with the SEC on December 6, 2010 (as the same may further be amended or supplemented from time to time, the Schedule 14D-9) by Isilon Systems, Inc., a Delaware corporation (the Company), relating
to the offer (the Offer) by Electron Merger Corporation, a Delaware corporation (Purchaser) and a wholly owned subsidiary of EMC Corporation, a Massachusetts corporation (Parent), as set forth in a Tender Offer
Statement filed by Parent and Purchaser on Schedule TO, dated November 19, 2010, as amended by Amendment No. 1 thereto filed with the SEC on December 2, 2010 and as amended by Amendment No. 2 thereto filed with the SEC on
December 6, 2010 (as the same may further be amended or supplemented from time to time, the Schedule TO), to purchase all outstanding shares of common stock, par value $0.00001 per share (the Shares) of the Company, upon
the terms and subject to the conditions set forth in the Offer to Purchase, dated November 19, 2010 and in the related Letter of Transmittal, copies of which are filed with the Schedule TO as Exhibits (a)(1)(A) and (a)(1)(B). Any capitalized
term used and not otherwise defined herein shall have the meaning ascribed to such term in the Schedule 14D-9.
All
information in the Schedule 14D-9 is incorporated into this Amendment No. 3 by reference, except that such information is hereby amended to the extent specifically provided herein.
This Amendment No. 3 is being filed to reflect certain updates as reflected below.
Item 4.
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The Solicitation or Recommendation.
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(b) Background.
(1) The fourth full paragraph on page 12 within
Item 4(b) is amended and restated in its entirety as follows:
On August 16, 2010, the Chairman of
Isilons Strategic Transactions Committee, Mr. McIllwain, met with Mr. Patel by teleconference to discuss recent developments, including a merger transaction involving a storage company that was publicly announced earlier that day.
Also in attendance, at the request of Messrs. McIlwain and Patel, were representatives of Morgan Stanley & Co. Incorporated (Morgan Stanley), which had provided certain financial advisory and financing services to Isilon in the
past. Isilon contacted Morgan Stanley based on Morgan Stanleys qualifications, expertise and reputation and in particular its knowledge of the technology industry generally as well as our business and affairs more specifically.
(2) The fifth full paragraph on page 12 within Item 4(b) is amended and restated in its entirety as follows:
On August 24, 2010, the Strategic Transactions Committee (which now included Donald J. Listwin, who joined the board of
directors the previous month) held a meeting, during which Mr. Patel updated the Committee on his recent communications with EMC regarding a potential OEM arrangement and other opportunities, and certain representatives of Morgan Stanley
briefed the committee with respect to the merger transaction involving a storage company that was publicly announced the prior week.
(3) The penultimate sentence of the sixth full paragraph on page 12 within Item 4(b) is amended and restated in its entirety as follows:
During that meeting, Mr. You proposed and discussed with Mr. Patel a range of possible strategic relationships, including
a possible acquisition of all of, or a controlling interesting in, the outstanding Common Stock of Isilon, as well as an OEM distribution relationship.
1
(4) The carry-over paragraph from page 12 to page 13 within Item 4(b) is amended by
adding the following as the new penultimate sentence:
Isilon contacted Qatalyst based on Qatalysts qualifications,
expertise and reputation and in particular its knowledge of, and recent experience with, data storage and networking companies.
(5) The first full paragraph on page 14 within Item 4(b) is amended and restated in its entirety as follows:
The board of directors convened a special meeting later that day, joined by representatives of Wilson Sonsini. The Strategic Transactions Committee, which had been briefed by Mr. Patel prior to
the meeting, reviewed with the board the proposed terms of the engagements for Qatalyst and Morgan Stanley and recommended that both firms be retained pursuant to such terms. After discussion of the merits of having external financial advisors to
assist the board and the senior management team in their evaluation of strategic alternatives, the board resolved to engage both Qatalyst and Morgan Stanley as Isilons financial advisors in connection with a potential sale transaction,
especially in light of their complementary expertise (including the long-standing relationship of Isilon with Morgan Stanley and the recent transactional experience of Qatalyst involving data storage and networking companies) and the boards
belief that their differentiated knowledge would provide unique perspectives to the board regarding the potential transaction. Representatives of Qatalyst and Morgan Stanley then joined the board meeting and, together with Mr. Patel, summarized
the terms of the EMC indication of interest. After some discussion and input from Wilson Sonsini, the board determined additional time was needed to further assess, and be advised with respect to, EMCs proposal, in particular as it compared to
Isilons stand-alone plan. In addition, in an effort to be fully informed and able to properly evaluate its options, the board of directors authorized the members of the Strategic Transactions Committee to work with members of senior
management, with advice from Qatalyst and Morgan Stanley, to identify other potential interested parties, some of which had previously expressed interest in Isilon, and to coordinate contacts with such parties and to do so in a manner that would
reduce the significant risk of harm to Isilons business and of employee dislocation if speculation arose that Isilon was considering a change-of-control transaction while balancing the boards objective of maximizing shareholder value by
canvassing a group of potential interested parties that would be most likely to have the desire and the financial ability to put forward a proposal to the Company at or above the valuation implied by the EMC indication of interest.
(6) The third full paragraph on page 14 within Item 4(b) is amended and restated in its entirety as follows:
During the course of the next several weeks, members of the Strategic Transactions Committee, Mr. Patel and
other members of senior management team, together with the advice and input of Qatalyst and Morgan Stanley, composed a plan to approach a limited number of potential companies that met the criteria and process outlined by the board of directors at
its September 7th meeting. Acting under the boards authorization and after the Strategic Transactions Committee assessed (together with the Companys advisors) strategic fit, recent activity, ability to pay and other factors, contact
was made with five strategic companies (other than EMC) considered to be the most likely potential interested parties. Two of the companies contacted indicated that they were interested in further evaluating the opportunity. On September 8,
2010, Isilon entered into mutual confidentiality agreements with both of these parties, one of which contained a standstill provision. After holding management-level due diligence sessions with each of those two companies during the
month of September, at which members of Isilons senior management presented an overview of Isilons business strategy and operations, and some technical diligence each of those companies subsequently indicated that it was not prepared to
submit a proposal for an acquisition transaction.
(7) The third full paragraph on page 15 within Item 4(b) is
amended and restated in its entirety as follows:
On October 15, 2010, Mr. Patel met with
Mr. Tucci and John R. Egan, Director and Chairman of EMCs Mergers and Acquisitions Committee, Mr. You and Mr. Napolitano in Hopkinton, Massachusetts. At that meeting, Mr. Patel discussed with Mr. Tucci and the other
representatives of EMC Isilons continued strong performance and his confidence in the continued momentum in Isilons business, as well as potential synergies between the two companies. Mr. Patel reiterated to EMC the board of
directors willingness to consider a proposal at $36.00 per share in cash. At the meeting, members of EMC senior management suggested that their consideration of any higher valuation would benefit from an additional due diligence session.
Mr. Patel and Mr. Tucci agreed that if agreement could be reached on price, it would be beneficial (due to certain rumors in the
2
marketplace that Isilon was engaged in discussions with EMC regarding a change-of-control transaction and general disclosure considerations) if a transaction could be announced in conjunction
with Isilons scheduled earnings announcement on October 21, 2010.
(d) Opinions of Isilons
Financial Advisors.
Qatalyst
(1) The first full paragraph under the subheading Qatalyst within Item 4(d) is amended by adding the following as the new third sentence:
In particular, Qatalyst was involved in several recent transactions in the networking and data storage industry, including acting as
financial advisor to 3PAR Inc. in its sale to Hewlett-Packard Company; to Data Domain, Inc. in its sale to EMC Corporation; to Brocade Communications Systems, Inc. in its acquisition of Foundry Networks, Inc.; and to Netezza Corporation in its sale
to International Business Machines Corporation.
(2)
Illustrative Discounted Cash Flow Analysis
. The fourth full
paragraph on page 23 within Item 4(d) is amended and restated in its entirety as follows:
Illustrative Discounted Cash Flow Analysis
. Qatalyst performed an illustrative discounted cash flow analysis,
which is designed to imply a potential value of a company by calculating the net present value of estimated future cash flows and corresponding terminal value of the company. Qatalyst calculated ranges of implied equity values per Share for Isilon
based on discounted cash flow analyses utilizing each of Management Case 1 and Management Case 2 in the Isilon Projections for the fourth quarter of 2010 through the calendar year 2016. With respect to Management Case 1, Qatalyst calculated the net
present value of unlevered free cash flows for Isilon for the fourth quarter of 2010 through the calendar year 2015 and calculated the terminal value at the end of 2015 by applying a range of multiples of 22.0x to 30.0x to Isilons estimated
fiscal year 2016 net operating profits after taxes. With respect to Management Case 2, Qatalyst calculated the net present value of unlevered free cash flows for Isilon for the fourth quarter of 2010 through the calendar year 2015 and calculated the
terminal value at the end of 2015 by applying a range of multiples of 20.0x to 26.0x to Isilons estimated fiscal year 2016 net operating profits after taxes. Qatalyst determined the ranges of multiples used based on the observed multiples of
estimated next twelve months net operating profits after taxes for the selected companies analyzed (see below under Selected Companies Analysis for listing of companies), with particular emphasis on those companies having growth and margins
determined to be the most similar to those of Isilon in the two Management Cases. The range of multiples applied to Management Case 1 was higher than the range of multiples applied to Management Case 2 because Isilon would have higher growth and
margins in Management Case 1 and thus be more similar to those selected companies demonstrating higher growth and margins. These terminal values were discounted to present values using a discount rate ranging from 10.5% to 16.5% in each of
Management Case 1 and Management Case 2, which discount rate was based upon the weighted average cost of capital of Isilon estimated by Qatalyst. Qatalyst estimated Isilons weighted average cost of capital by calculating an illustrative
unlevered beta based 67% on Isilons unlevered beta and 33% on the median unlevered beta of the selected storage companies and high growth systems companies analyzed by Qatalyst. Using the historical beta data provided by Bloomberg as of
November 12, 2010 and the predicted beta data provided by Barra as of October 29, 2010, Qatalyst obtained a range of illustrative unlevered betas from 1.22 to 1.62. Based on those figures, and assuming a risk free rate of 3.9%, a market
risk premium ranging from 5.2% to 6.7%, a size premium ranging from 0.0% to 1.7% and an all-equity capitalization structure, Qatalyst calculated an implied weighted average cost of capital ranging from 10.2% to 16.4%. Qatalyst then applied a
dilution factor of 20% in each of Management Case 1 and Management Case 2 to the sum of the net present value of cash flows and the net present value of the terminal value estimated by Qatalyst to reflect the net dilution to current stockholders
through 2016 due to the net effect of future equity compensation grants projected by Isilon management. Based on the calculations set forth above, this analysis implied a range of values for the Common Stock of approximately $27.44 to $44.64 per
Share based on Management Case 1 and approximately $15.04 to $22.22 per Share based on Management Case 2.
3
(3)
Selected Companies Analysis
. The list of
Storage Companies
and
High Growth Systems Companies
on page 24 within Item 4(d) is replaced in its entirety with the following new table:
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Storage Companies
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CY11E P/E Multiples
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EMC Corporation
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15.1x
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EMC Corporation less value of EMC Corporations stake in VMware Inc.
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9.9x
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NetApp, Inc.
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24.8x
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Brocade Communications Systems, Inc.
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10.3x
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QLogic Corporation
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12.7x
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CommVault Systems, Inc.
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34.3x
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Compellent Technologies, Inc.
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65.8x
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High Growth Systems Companies
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CY11E P/E Multiples
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F5 Networks, Inc.
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35.6x
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Riverbed Technology, Inc.
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38.4x
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Aruba Networks, Inc.
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38.9x
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Fortinet, Inc.
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55.7x
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(4)
Selected
Companies Analysis
. The second full paragraph on page 24 within Item 4(b) is amended by adding the following at the end of such paragraph:
The CY11E P/E Multiples for each company analyzed are set forth in the table above.
(5)
Selected Companies Analysis
. The third full paragraph on page 24 within Item 4(b) is amended and restated in its entirety as follows:
Based on an analysis of the CY11E P/E Multiple for each of the selected companies, Qatalyst selected a
representative range of 45.0x to 55.0x and applied this range to Isilons estimated calendar year 2011 earnings per Share, assuming taxation at 35%. Qatalyst determined the representative range of 45.0x to 55.0x based on the observed CY11E P/E
multiples of the companies analyzed, with particular emphasis on those companies having growth and margins determined to be most similar to those of Isilon. Based on Isilons outstanding Shares, options, RSUs and warrants as reported in
Isilons quarterly report on Form 10-Q filed with the SEC on October 22, 2010, the calculations set forth above and including the estimated $0.35 per Share net present value of federal net operating loss carryforwards applying a projected
utilization schedule as set forth in the appropriate Isilon Projections and using a 13.5% discount rate, this analysis implied a range of values for the Common Stock of approximately $19.93 to $24.28 per Share based on Management Cases 1 and 2.
Calendar year 2011 earnings per Share were identical in Management Cases 1 and 2. Qatalyst accounted for Isilons net operating loss carryforwards by adding back their net present value after determining a range of values for the Common Stock
assuming Isilons earnings are fully taxed so as to permit a comparable comparison with the other companies analyzed.
(6)
Selected Transactions Analysis
. The table under the subheading
Selected Transactions Analysis
on page 25 within Item 4(b) is amended and restated in its entirety as
follows:
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Acquiror
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Target
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Enterprise Value / NTM
Revenue Multiples
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Oracle Corporation
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Art Technology Group Inc.
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3.9x
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Carlyle Group
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Syniverse Holdings Inc.
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4.0x
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Carlyle Group
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CommScope, Inc.
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1.1x
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4
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Acquiror
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Target
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Enterprise Value / NTM
Revenue Multiples
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International Business Machines Corporation
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Netezza Corporation
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6.7x
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Hewlett-Packard Company
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ArcSight Inc.
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5.9x
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Hewlett-Packard Company
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3PAR Inc.
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9.3x
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Intel Corporation
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McAfee, Inc.
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3.1x
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SAP AG
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Sybase, Inc.
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4.6x
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Hewlett-Packard Company
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Palm, Inc.
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1.4x
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Visa Inc.
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Cybersource Corporation
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5.5x
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Cisco Systems, Inc.
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Tandberg ASA
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3.2x
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Hewlett-Packard Company
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3Com Corporation
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2.3x
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Cisco Systems, Inc.
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Starent Networks, Corp.
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6.6x
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Emerson Electric Co.
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Avocent Corporation
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2.1x
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Xerox Corporation
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Affiliated Computer Services, Inc.
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1.2x
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Dell Inc.
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Perot Systems Corporation
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1.5x
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Adobe Incorporated
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Omniture, Inc.
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4.8x
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International Business Machines Corporation
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SPSS Inc.
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2.9x
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EMC Corporation
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Data Domain, Inc.
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5.4x
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Intel Corporation
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Wind River Systems, Inc.
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2.1x
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Oracle Corporation
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Sun Microsystems, Inc.
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0.4x
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Autonomy Corporation PLC
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Interwoven, Inc.
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2.1x
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(7)
Selected
Transactions Analysis
. The second full paragraph on page 25 within Item 4(b) is amended and restated in its entirety as follows:
For each of the transactions listed above, Qatalyst reviewed, among other things, enterprise value as a multiple of next 12 months estimated revenue reflected in third-party research analysts
projections (as set forth in the table above). Based on the analysis of such metrics for the transactions noted above, Qatalyst selected a representative range of 5.4x to 9.3x (which were the enterprise value to next twelve months revenue
multiples in the transactions involving the two companies analyzed by Qatalyst that Qatalyst considered to be the most similar to Isilon) and applied this range of multiples to Isilons next 12 months estimated revenue reflected in the Street
Projections. Based on the calculations set forth above, this analysis implied a range for the Common Stock of approximately $19.39 to $31.62 per Share based on Street Projections.
(8)
Equity Research Analyst Price Target Statistics
. The last full paragraph on page 25 within Item 4(b) is amended by adding
the following at the end of such paragraph:
The following analysts reported price targets as set forth on the following
table:
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Analyst
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Price Target
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ThinkEquity
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$
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32.00
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Argus
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Capstone
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$
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28.00
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McAdams Wright Ragen
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$
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28.00
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MKM
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$
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29.00
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Morgan Stanley
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$
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24.00
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Morningstar
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$
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22.00
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Needham
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$
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33.00
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Pacific Crest
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$
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33.00
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RBC Capital Markets
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$
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33.00
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Stifel Nicolaus
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William Blair
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5
(9)
Historical Termination Fee Analysis
. Page 26 within Item 4(b) is amended by
adding the following immediately prior to the subheading
Miscellaneous
:
Historical
Termination Fee Analysis
. Qatalyst also reviewed the historical termination fees of 734 transactions with reported transaction values between $1 billion and $3 billion since January 1, 1985. Within that sample, the termination fees as a
percentage of the transaction value (based on ranking value, including net debt) were as follows:
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Termination Fee
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Number of Transactions
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0.00% - 1.00%
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68
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1.00% - 2.00%
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151
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2.00% - 2.25%
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63
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2.25% - 2.50%
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60
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2.50% - 2.75%
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69
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2.75% - 3.00%
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73
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3.00% - 3.25%
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81
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3.25% - 3.50%
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44
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3.50% - 3.75%
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43
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3.75% - 4.00%
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31
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4.00% - 4.25%
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16
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4.25% - 4.50%
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10
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4.50% or greater
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25
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Morgan Stanley
(1)
Comparable Company Analysis
. Page 29 within Item 4(b) is amended by adding the following immediately prior to the second
full paragraph on such page:
Outlined below is a list of the Comparable Companies and multiples
referenced in Morgan Stanleys analysis:
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CY2011E
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Aggregate Value /
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Price /
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Company
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Revenue
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EPS
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Aruba Networks, Inc.
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6.3 x
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41.2 x
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Compellent Technologies, Inc.
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3.4 x
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64.5 x
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F5 Networks, Inc.
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7.9 x
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33.5 x
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Fortinet, Inc.
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5.9 x
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52.5 x
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Rackspace Hosting, Inc.
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4.2 x
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51.8 x
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Riverbed Technology, Inc.
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6.3 x
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38.6 x
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VMWare, Inc.
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9.8 x
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45.3 x
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Brocade Communications Systems, Inc.
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1.6 x
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10.6 x
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Cisco Systems, Inc.
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2.1 x
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11.8 x
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Comm Vault Systems, Inc.
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3.8 x
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34.2 x
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EMC Corporation
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2.1 x
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15.3 x
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Emulex Corporation
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1.9 x
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20.5 x
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Juniper Networks, Inc.
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3.7 x
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23.4 x
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NetApp, Inc.
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3.3 x
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24.6 x
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QLogic Corporation
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2.7 x
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12.7 x
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6
(2)
Comparable Company Analysis
. The first sentence of the second full paragraph on
page 29 within Item 4(b) is amended and restated as follows:
Based on its analysis of the relevant metrics for each
of the Comparable Companies, Morgan Stanley used its judgment to select from the multiples outlined in the above table reference ranges of financial multiples and applied these ranges of multiples to the relevant financial statistic of Isilon.
(3)
Equity Research Analysts Price Targets
. The carry-over paragraph from page 29 to page 30 within
Item 4(b) is amended by adding the following at the end of such paragraph:
Outlined below is a list of the
identities and price targets of the equity research analysts referenced in Morgan Stanleys analysis:
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Firm
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Date of Price
Target
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Price
Target
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Pacific Crest Securities
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10/22/10
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$
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33.00
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RBC Capital Markets
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10/21/10
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$
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33.00
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Needham and Company
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10/21/10
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$
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33.00
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ThinkEquity
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10/22/10
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$
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32.00
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MKM Partners
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10/21/10
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$
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29.00
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Capstone
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10/21/10
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$
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28.00
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McAdams Wright Ragen
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10/21/10
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$
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28.00
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(4)
Discounted
Equity Value Analysis
. The third full paragraph on page 30 is amended by adding the following at the end of such paragraph:
To determine the discount rate, Morgan Stanley used a cost of equity calculation based on the capital asset pricing model, which
incorporates the risk-free rate, equity risk premium and a companys beta to derive a cost of capital, as outlined below:
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Risk-Free Rate (Yield on 10-Year Treasury)
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2.8
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%
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Equity Risk Premium
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6.0
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%
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Isilon Predicted Beta
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1.262
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Cost of Equity
|
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10.3
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%
|
Morgan Stanley chose 2013
as the primary year for its Discounted Equity Value Analysis because it was a period beyond the near term forecasts considered in the Comparable Company Analysis which was still within a reasonable horizon for forecasting purposes.
(5)
Discounted Equity Value Analysis
. The fourth full paragraph on page 30 is amended and restated in its entirety as follows:
Morgan Stanley reviewed Isilons current price to earnings per share multiple and its multiple over time and
reviewed the multiples of comparable companies referenced above and used its judgment to select a reference range for its discounted equity value analysis that it believed was appropriate based on the financial characteristics of each of the
forecast cases, as outlined below. The following table summarizes Morgan Stanleys analysis:
|
|
|
|
|
Calendar Year 2013 Assumed Earnings Per Share
|
|
Comparable Company
Multiple Range
|
|
Implied Present
Value Per
Share of the Common Stock
|
Street Case
|
|
25.0x 40.0x
|
|
$11.40 $18.09
|
Management Case 1
|
|
40.0x 50.0x
|
|
$32.42 $40.53
|
Management Case 2
|
|
35.0x 45.0x
|
|
$20.31 $26.11
|
7
In order to incorporate the incremental value attributable to shareholders from
Isilons net operating losses (NOLs), Morgan Stanley reviewed the NOLs that were estimated to be remaining in each of the financial cases, estimated the remaining future tax benefits, if any, that would be available to Isilon from
the use of these NOLs and then estimated the per share value of such tax benefits, which amount was then added to the per share value in the discounted equity value analysis. The analysis led to a $0.32, $0.00 and $0.02 adjustment per share in the
Street Case, Management Case 1, and Management Case 2 scenarios, respectively, for the discounted equity valuation using a 2013 forward price to earnings per share multiple.
(6)
Analysis of Precedent Transactions
. The first two paragraphs under the subheading Analysis of Precedent
Transactions on pages 30 and 31 within Item 4(b) are amended and restated in their entirety as follows:
Morgan Stanley performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly
available financial terms and premia of selected transactions that share some characteristics with this transaction. In connection with its analysis of precedent transaction premia, Morgan Stanley compared publicly available statistics for selected
technology sector transactions occurring between January 1, 2009 and November 12, 2010 with a transaction value greater than $1 billion. Outlined below is a list of these transactions referenced in Morgan Stanleys analysis and, for
each of these transactions, (1) the implied premium to the closing share price on the last trading day prior to announcement and (2) the implied premium to the average closing share price for the 30 trading days prior to announcement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premia
|
|
Target / Acquiror
|
|
Announcement
Date
|
|
|
1-Day
|
|
|
30-Day
|
|
Art Technology Group, Inc. / Oracle Corporation
|
|
|
11/02/10
|
|
|
|
46.3
|
%
|
|
|
43.4
|
%
|
Netezza Corporation / International Business Machines Corporation
|
|
|
09/20/10
|
|
|
|
9.8
|
%
|
|
|
77.9
|
%
|
ArcSight, Inc. / Hewlett-Packard Company
|
|
|
09/13/10
|
|
|
|
54.1
|
%
|
|
|
69.7
|
%
|
3PAR Inc. / Hewlett-Packard Company
|
|
|
09/02/10
|
|
|
|
242.0
|
%
|
|
|
236.4
|
%
|
McAfee, Inc. / Intel Corporation
|
|
|
08/19/10
|
|
|
|
60.4
|
%
|
|
|
52.8
|
%
|
ADC Telecommunications, Inc. / Tyco Electronics Ltd.
|
|
|
07/13/10
|
|
|
|
44.1
|
%
|
|
|
62.4
|
%
|
SonicWALL, Inc. / Investor Group
|
|
|
06/02/10
|
|
|
|
31.9
|
%
|
|
|
19.4
|
%
|
Sybase, Inc. / SAP AG
|
|
|
05/12/10
|
|
|
|
56.4
|
%
|
|
|
44.6
|
%
|
Interactive Data Corp. / Investor Group
|
|
|
05/03/10
|
|
|
|
32.9
|
%
|
|
|
33.3
|
%
|
Palm, Inc. / Hewlett-Packard Company
|
|
|
04/28/10
|
|
|
|
48.1
|
%
|
|
|
9.9
|
%
|
CyberSource Corporation / Visa Inc.
|
|
|
04/21/10
|
|
|
|
33.7
|
%
|
|
|
39.8
|
%
|
SkillSoft plc / Investor Group
|
|
|
02/12/10
|
|
|
|
15.3
|
%
|
|
|
11.7
|
%
|
3Com Corporation / Hewlett-Packard Company
|
|
|
11/11/09
|
|
|
|
38.8
|
%
|
|
|
44.1
|
%
|
IMS Health Incorporated / Investor Group
|
|
|
11/05/09
|
|
|
|
30.9
|
%
|
|
|
50.0
|
%
|
Starent Networks, Corp. / Cisco Systems, Inc.
|
|
|
10/13/09
|
|
|
|
20.6
|
%
|
|
|
39.8
|
%
|
Tandberg ASA / Cisco Systems, Inc.
|
|
|
10/01/09
|
|
|
|
22.9
|
%
|
|
|
35.6
|
%
|
Affiliated Computer Systems, Inc. / Xerox Corporation
|
|
|
09/28/09
|
|
|
|
33.6
|
%
|
|
|
38.5
|
%
|
Perot Systems Corporation / Dell Inc.
|
|
|
09/21/09
|
|
|
|
67.5
|
%
|
|
|
79.0
|
%
|
Omniture, Inc. / Adobe Systems Incorporated
|
|
|
09/15/09
|
|
|
|
24.1
|
%
|
|
|
44.1
|
%
|
Chartered Semiconductor Manufacturing Ltd. / ATIC International Investment Company LLC
|
|
|
09/07/09
|
|
|
|
1.7
|
%
|
|
|
16.6
|
%
|
SPSS Inc. / International Business Machines Corporation
|
|
|
07/28/09
|
|
|
|
42.5
|
%
|
|
|
51.2
|
%
|
Bankrate, Inc. / Apax Partners
|
|
|
07/22/09
|
|
|
|
15.8
|
%
|
|
|
14.3
|
%
|
Data Domain, Inc. / EMC Corporation
|
|
|
07/06/09
|
|
|
|
87.0
|
%
|
|
|
114.7
|
%
|
Wind River Systems, Inc. / Intel Corporation
|
|
|
06/04/09
|
|
|
|
43.8
|
%
|
|
|
57.0
|
%
|
Sun Microsystems, Inc. / Oracle Corporation
|
|
|
04/20/09
|
|
|
|
42.0
|
%
|
|
|
43.6
|
%
|
Gmarket Inc. / eBay Inc.
|
|
|
04/15/09
|
|
|
|
20.2
|
%
|
|
|
43.5
|
%
|
Interwoven Inc. / Autonomy Corporation plc
|
|
|
01/22/09
|
|
|
|
36.8
|
%
|
|
|
36.8
|
%
|
8
In connection with its analysis of precedent transaction multiples, Morgan Stanley compared
publicly available statistics for selected enterprise IT sector transactions occurring between January 1, 2007 and November 12, 2010. Morgan Stanley compared certain of our financial information with publicly available consensus equity
research estimates for certain transactions that shared similar business characteristics with Isilon. Outlined below is a list of these transactions referenced in Morgan Stanleys analysis and, for each of these transactions, (1) the ratio
of the aggregate value of the transaction to next twelve months estimated revenue and (2) the ratio of price to next twelve months estimated earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Value /
|
|
Date
Announced
|
|
Target/ Acquiror
|
|
NTM Rev.
|
|
|
NTM P/E
|
|
11/2/2010
|
|
Art Technology Group, Inc. / Oracle Corporation
|
|
|
3.8
|
|
|
|
24.8
|
|
9/20/2010
|
|
Netezza Corporation / International Business Machines Corporation
|
|
|
6.0
|
|
|
|
81.8
|
|
9/13/2010
|
|
ArcSight, Inc. / Hewlett-Packard Company
|
|
|
6.8
|
|
|
|
54.4
|
|
9/2/2010
|
|
3PAR Inc. / Hewlett-Packard Company
|
|
|
8.9
|
|
|
|
165.0
|
|
8/16/2010
|
|
3PAR Inc. / Dell Inc.
|
|
|
4.5
|
|
|
|
90.0
|
|
8/19/2010
|
|
McAfee, Inc. / Intel Corporation
|
|
|
3.1
|
|
|
|
17.4
|
|
8/13/2010
|
|
Unica Corporation / International Business Machines Corporation
|
|
|
3.4
|
|
|
|
37.2
|
|
5/12/2010
|
|
Sybase, Inc. / SAP AG
|
|
|
4.7
|
|
|
|
27.1
|
|
9/15/2009
|
|
Omniture, Inc. / Adobe Systems Incorporated
|
|
|
4.3
|
|
|
|
33.6
|
|
7/6/2009
|
|
Data Domain, Inc. / EMC Corporation
|
|
|
5.5
|
|
|
|
74.4
|
|
1/22/2009
|
|
Interwoven Inc. / Autonomy Corporation plc
|
|
|
2.0
|
|
|
|
17.2
|
|
3/17/2008
|
|
BladeLogic, Inc. / BMC Software, Inc.
|
|
|
8.4
|
|
|
|
NM
|
|
11/12/2007
|
|
Cognos Incorporated / International Business Machines Corporation
|
|
|
3.7
|
|
|
|
25.3
|
|
10/12/2007
|
|
BEA Systems, Inc. / Oracle Corporation
|
|
|
4.4
|
|
|
|
NA
|
|
10/8/2007
|
|
SafeBoot Corporation / McAfee, Inc.
|
|
|
NM
|
|
|
|
NA
|
|
10/7/2007
|
|
Business Objects S.A. / SAP AG
|
|
|
3.6
|
|
|
|
25.7
|
|
8/15/2007
|
|
XenSource, Inc. / Citrix Systems, Inc.
|
|
|
10.0
|
|
|
|
NA
|
|
7/23/2007
|
|
Opsware Inc. / Hewlett-Packard Company
|
|
|
10.1
|
|
|
|
NM
|
|
3/15/2007
|
|
WebEx Communications, Inc. / Cisco Systems, Inc.
|
|
|
6.1
|
|
|
|
35.5
|
|
3/1/2007
|
|
Hyperion Solutions Corporation / Oracle Corporation
|
|
|
3.0
|
|
|
|
26.6
|
|
1/29/2007
|
|
Altiris, Inc. / Symantec Corporation
|
|
|
3.5
|
|
|
|
32.4
|
|
For the transactions
involving 3PAR referenced above, Morgan Stanley observed Dells initial bid on August 16, 2010 of $18.00 per share for 3PAR as well as the ultimately successful Hewlett-Packard bid for 3PAR on September 2, 2010 of $33.00 per share.
Morgan Stanley reviewed the multiples in the original proposed transaction by Dell as well as the final acquisition by Hewlett-Packard.
(7)
Analysis of Precedent Transactions
. The first sentence of the second full paragraph on page 31 within Item 4(b) is amended and restated in its entirety as follows:
Based on an analysis of the relevant metrics and time frame for each transaction referenced above, Morgan Stanley used its judgment
to select ranges of implied premia and financial multiples of the transactions and applied these ranges of premia and financial multiples to the relevant financial statistic of Isilon.
Item 5.
|
Person/Assets, Retained, Employed, Compensated or Used.
|
Item 5 is amended by adding the following at the end of such Item:
Amount of Fees Payable to Financial Advisors
.
Under the terms of their respective engagement letters, Isilon has agreed to pay Qatalyst and Morgan Stanley in the aggregate fees
of approximately $32.5 million for their financial advisory services in connection with EMCs acquisition of Isilon, $4.5 million of which became payable in connection with the execution of the Merger Agreement and the remaining approximately
$28.0 million of which is contingent upon, and will become payable upon, completion of the Offer.
9
Item 8.
|
Additional Information.
|
The subsection entitled Top-Up Option within Item 8 is amended by adding the following at the end of such subsection:
As of November 15, 2010, there were 66,702,734 issued and outstanding shares of Common Stock, and
183,297,266 authorized but unissued shares of Common Stock. Based on these amounts, approximately 41,423,324 shares of Common Stock must be validly tendered and not withdrawn pursuant to the Offer in order for Purchaser to be able to exercise the
Top-Up Option in accordance with the Merger Agreement.
The subsection entitled Litigation within
Item 8 is amended and restated in its entirety as follows:
Litigation
. Beginning on
November 15, 2010, several putative class action lawsuits were filed purportedly on behalf of a class of Isilons stockholders in King County Superior Court, Washington (the
Washington State Court
), captioned
Durand
v. Isilon Systems, Inc., et al.
, Case No. 10-2-40094-0-SEA (the
Durand Complaint
),
Bushansky v. Isilon Systems, Inc., et al.
, Case No. 10-2-40842-8-SEA (the
Bushansky Complaint
),
Jones v.
Isilon Systems, Inc., et al.
, Case No. 10-2-41201-8-SEA (the
Jones Complaint
), and
Hale v. Ruckelshaus, et al.
, Case No. 10-2-41098-8-SEA (the
Hale Complaint
). On November 30, 2010,
another purported class action lawsuit on behalf of Isilons stockholders was filed in United States District Court for the Western District of Washington, captioned
Laub v. Isilon Systems, Inc., et al.
, Civ. A. No. 2:10-cv-01938
(the
Laub Complaint
). On December 6, 2010, another purported class action lawsuit on behalf of Isilons stockholders was filed in the Court of Chancery in the State of Delaware, captioned
Coimbatore v. Isilon Systems,
Inc.
,
et al.
, Case No. 6050-VCN (the
Coimbatore Complaint
and, together with the Durand Complaint, the Bushansky Complaint, the Jones Complaint, the Hale Complaint and the Laub Complaint, the
Complaints
). The Complaints name Isilon and each of the members of Isilons board of directors as defendants. The Jones Complaint and the Laub Complaint name EMC as an additional defendant, and the Bushansky Complaint, the
Hale Complaint and the Coimbatore Complaint name EMC and Purchaser as additional defendants.
The Complaints
allege, among other things, that the board of directors breached fiduciary duties owed to Isilons stockholders by failing to take steps to maximize stockholder value or to engage in a fair sale process when approving the proposed merger with
EMC. The Complaints also allege that Isilon, EMC (where applicable) and Purchaser (where applicable) aided and abetted the members of Isilons board of directors in the alleged breach of their fiduciary duties, and that Isilons disclosure
on Schedule 14D-9 contains certain material omissions, rendering some statements therein misleading. The plaintiffs sought expedited discovery and on December 6, 2010, the Durand plaintiff moved to consolidate all of the lawsuits pending in
Washington State Court. On December 8, 2010, defendants Isilon and members of its board of directors answered the Coimbatore Complaint. On December 8, 2010, defendants also moved to stay each of the actions pending in Washington State
Court in favor of the Coimbatore action pending in Delaware Chancery Court.
On December 13, 2010, all
defendants, including Isilon, entered into a memorandum of understanding (the
MOU
) with the plaintiffs to settle all of the Complaints. Pursuant to the terms of the MOU, the parties expect to execute a stipulation of settlement,
which will be subject to approval by the Washington State Court following notice to Isilons shareholders. There can be no assurance that the settlement will be finalized or that the Washington State Court will approve the settlement. The
settlement terms provide that all of the Complaints will be dismissed with prejudice as to all defendants. Further, without agreeing that any of the claims in the Complaints have merit or that any supplemental disclosure was required under any
applicable statute, rule, regulation or law, Isilon has agreed pursuant to the settlement terms to make the additional disclosures concerning the Offer reflected above, which supplement the information provided in Isilons original
Solicitation/Recommendation Statement on Schedule 14D-9 disseminated on November 19, 2010.
10
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Amendment is true, complete and correct.
|
|
|
ISILON SYSTEMS, INC.
|
|
|
By:
|
|
/
S
/ K
EENAN
M.
C
ONDER
|
|
|
Keenan M. Conder
|
|
|
Vice President, General Counsel and Corporate Secretary
|
Dated: December 13, 2010
11
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