NetApp on Wednesday agreed to buy rival data-storage company Data Domain for $1.5 billion in cash and stock.

Under the deal, NetApp would pay an equivalent of $25 a share for Data Domain, a 40% premium over Wednesday's closing stock price. Data Domain's board has approved the agreement, which is expected to close within 120 days, pending regulatory approval.

Both companies offer disk-based backup systems, which augment tape backup used for long-term storage of data, often to comply with government regulations and legal requirements. Data Domain specializes in deduplication technology that reduces the storage of redundant data.

In an apparent nod to Data Domain customers, Dan Warmenhoven, chairman and chief executive of NetApp, said the company would "create systems and incentives within NetApp to nurture Data Domain to its fullest potential."

"Their existing customers should see the benefits of NetApp's broader scale and support capabilities," Warmenhoven said in a statement.

The deal reflects the ongoing consolidation among makers of data center technology. Both companies compete with the larger EMC.

In addition, there's a growing trend in storage in which network-attached storage vendors are teaming up with deduplication companies in order to make a stronger offering. In this case, NetApp plans to strengthen its deduplication capabilities by buying a competitor. But examples of partnerships include NAS suppliers like BlueArc, Isilon, and Hewlett-Packard partnering with Ocarina Networks and others.

NetApp announced the acquisition the same day it reported a 16% drop in fiscal fourth quarter profits to $75.1 million, or 23 cents a share, from $89.8 million, or 26 cents a share, the same period a year ago. Overall revenue fell more than 6% to $879.6 million, as product sales dropped by 20%.

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