HP in bidding war with Dell over 3PAR
The move to acquire nine-year-old 3PAR for about one-third more than Dell’s offer adds to a rush of mergers in the technology sector, with companies taking advantage of cash stockpiles and relatively low stock market prices.
Giant technology companies like HP, Dell and International Business Machines Corp are expanding rapidly into new areas, hoping to offer a more comprehensive set of technology products spanning hardware and software — but encroaching increasingly into each others’ traditional markets.
HP, for its part, has diversified beyond computers with acquisitions of network device maker 3Com, tech services provider Electronic Data Systems and mobile device company Palm. Such deals have turned it into a sprawling $125-billion enterprise with over 300,000 employees.
“What we’re seeing is a shift toward convergence. You have these one-stop shops forming that span everything from servers to networking and storage,” said Morgan Keegan analyst Brian Freed. “You’re going to see this natural consolidation of hundreds and thousands of players into a smaller number of dominant players.”
HP’s offer surprised analysts, who had speculated that the company would be thrown into disarray after Chief Executive Officer Mark Hurd resigned this month over sexual harassment allegations.
Its latest $24-a-share offer for 3PAR marks a 33 percent premium to last week’s $18 per share bid by Dell, which the storage company’s board has approved. At the time, Dell’s bid was 87 percent over 3PAR’s share price.
Shares of 3PAR, which was founded in 1999 and earned revenue of $194 million in its last fiscal year, jumped almost 43 percent to $25.78 — surpassing HP’s offer and showing that investors expect a higher price.
“3PAR will further expand our strategic footprint in storage and diversify our offerings,” Dave Donatelli, head of HP’s enterprise server, storage and networking business, said on a conference call.
Donatelli also disclosed that HP had made a previous bid for 3PAR even before Dell announced its deal, although he did not comment on when and at what price its offer was made.
TECH M&A STEPPING UP
August has been an unusually active month for deals. Intel Corp’s $7.7 billion bid for security software maker McAfee Inc meant nearly $90 billion in deals had been announced last week alone — the busiest week since August of 2006, Thomson Reuters data showed.
HP said it was awaiting a response from 3PAR. A representative from Dell was not immediately available, and 3PAR declined to comment.
Executives waved off suggestions that HP’s leadership vacuum would hinder bold moves. Hurd resigned on August 6 after a marketing contractor sent a letter to HP alleging that she had lost work from the company because she did not have sex with Hurd, according to a source.
Donatelli, one of several executives seen as contenders for the job, said the absence of a permanent CEO wasn’t a problem.
“I have absolutely no concerns as it relates to this deal,” he said.
But a bidding war could make the situation tricky, and HP stock was down 1.5 percent at $39.24.
Cross Research analyst Shannon Cross said another bidder could emerge, although HP, with a market capitalization of around $93 billion, has an advantage over Dell, which is valued at under $24 billion.
“Both companies have the capacity to bid up, but HP has a significant cash balance and significant cash flow, and it has over two times the revenue of Dell,” Cross said.
Bidding wars are rare in the technology industry, where deals are often finalized behind closed doors, with exceptions like the 2009 battle between Oracle Corp and IBM for Sun Microsystems. Oracle eventually bought the computer maker for $7 billion.
In another rare face-off, EMC Corp beat out NetApp Inc last year to take over Data Domain, a company that specialized in reducing duplicate information on storage information.
Information technology heavyweights like Cisco Systems Inc, in addition to IBM and Oracle, are vying to broaden their product lines as corporate customers don’t want to deal with numerous IT vendors.
Large companies, struggling with increasing data traffic and various software, demand services and products that reduce the complexities and costs of running data centers.
Analysts said 3PAR’s expertise in a niche area of high-end storage makes it a particularly attractive target for companies like HP and Dell, which are trying to broaden their offerings. Its scarcity value means bidders might be willing to pay more than 3PAR appears to be worth on paper, they said.
“We expect to see at least one to two more iterations before this process is over — not based on value, but on the deal being ‘strategic’ in solidifying either’s position in the storage space,” said Collins Stewart analyst Louis Miscioscia.
Donatelli said HP had met with 3PAR’s senior executives and felt they would be an “excellent fit.”
HP offered terms that it said would be similar to those proposed by Dell, but would not include a termination fee. It also said its board had approved the bid.
For 3PAR, a deal with a large company like Dell or HP would give it a broader sales reach, helping it compete against rival EMC as well as smaller players like Isilon Systems Inc and Compellent Technologies Inc.
Shares in Isilon rose almost 12 percent while Compellent rose 12.5 percent, as the high premium HP offered raised expectations for more deals.
HP said its proposed deal would close by the end of the year. It also said it would not expect a material negative impact on earnings in the 2011 fiscal year.