Iomega, the data storage company that once revolutionized portable storage technology with its famous Zip drives, has agreed to be acquired by Fortune 500 software company EMC Corporation after spurning a competing offer from ExcelStor Great Wall Technology, a hard disk maker backed by the Chinese government.

EMC Corporation is a manufacturer of software and systems for information management and storage. It is headquartered in Hopkinton, Massachusetts, USA. EMC produces a range of enterprise storage products, including hardware disk arrays and storage management software, and reported annual revenue of $13 billion last year.

The Iomega Corporation is a supplier of portable computer storage devices and media. The corporation, established in 1980, has 208 employees at present. Iomega is headquartered in San Diego, California, with other offices in Utah, Singapore, and Switzerland. The company posted annual revenue of $336 million in 2007.

Prior to this deal, which values Iomega at $213 million or $3.85 per share, the company had rejected two earlier offers from EMC of $178 million and $205.5 million respectively. In fact, before the EMC offer, Iomega had considered merging with ExcelStor Great Wall in a transaction in which the former would have been a minority shareholder with a 40-per cent stake.

Negotiations were at an advanced stage and Iomega will be required to pay $7.5 million to ExcelStor Great Wall in separation fees. Interestingly, this amount is the exact difference between the second and final EMC offers.

Although the ExcelStor Great Wall deal would have made Iomega part of a much bigger company, the potential payoff from the ExcelStor Great Wall merger was uncertain, according to analysts, whereas now, the shareholders reap immediate benefits. Also, the US government may not have looked kindly on the Chinese deal, just as it successfully opposed Huawei's attempt to grab a 21.5 per cent stake in US networking specialist 3Com last year.

The deal is expected to close in the second half of 2008, after the tender offer starts in two weeks.

Expectations from the deal
''They were both good opportunities,'' said Jonathan Huberman, Iomega's chief executive. ''We are very excited about the EMC announcement. For shareholders, $3.85 is a significant premium'' from where Iomega shares traded before EMC began pursuing the company. The initial EMC bid at $3.25 per Iomega share was made just four weeks ago.

Additionally, this deal offers the Iomega management considerable freedom of operation. Iomega CEO will take charge of the new Consumer/Small Business Products Division at EMC, which will include Iomega's range along with the Retrospect and LifeLine software products. He will report to Joel Schwartz, the senior vice-president and general manager for EMC's Storage Platforms.

''Iomega will play a key role in EMC's strategy to expand our information storage and management capabilities deeper into the high-growth consumer and small-business markets,'' said Joe Tucci, EMC's chief executive, in a statement.

At present, Iomega is much smaller than the technology major it used to be in the 1990s. Propelled by its Zip drives, the company's sales surged from $326 million in 1995 to $1.7 billion two years later. Its stock topped out at $135 a share in May 1996. However, as competing technologies caught up, it couldn't come up with another killer product and gradually lost market share and employees. In the last two years, it has seen a turnaround in its fortunes and seen annual revenue rising steadily.

EMC has acquired several companies in the recent past in its bid to grow inorganically. These include the purchases of Captiva Software for $275 million in 2005 and Document Sciences for $86 million this year. Others include WysDM, Conchango, Infra, Pi and online backup specialist Mozy, which it bought for $76 million last year.

The deal was announced after close of market hours yesterday. Iomega shares, which had closed yesterday at $3.64, rose to $3.80 in early after-hours trading.