Analysis: Dell expected to bow out of 3PAR bidding

NEW YORK Mon Aug 30, 2010 9:08pm EDT

Utility storage units are shown at 3Par Inc, company headquarters in Fremont, California August 27, 2010. REUTERS/Robert Galbraith

Utility storage units are shown at 3Par Inc, company headquarters in Fremont, California August 27, 2010.

Credit: Reuters/Robert Galbraith

NEW YORK (Reuters) - Dell Inc DELL.O is widely expected to bow out of a bidding war with Hewlett-Packard Co (HPQ.N) for data storage company 3PAR Inc (PAR.N) because of the increased price tag.

A survey of eight technology investors and analysts by Reuters on Monday found most expect Dell to soon give up its pursuit of 3PAR, either ceding to HP's last offer of $30 per share or giving up at a few dollars higher at most.

Dell has until Wednesday to match HP's $2 billion offer for the company, which analysts say would help speed up its expansion from personal computers into more profitable enterprise technology services.

"Clearly both companies really want 3PAR as part of their product mix, and they've both recognized the importance of storage in these cloud computing architectures. But I think it's hard to compete with HP. They've got the bigger balance sheet," said Peter Bell at venture capital firm Highland Capital Partners.

Analysts have said HP, with $115 billion of annual revenue compared with Dell's $53 billion, holds the advantage of a bigger check book. HP also has a bigger and more global sales force that could help 3PAR grow faster, meaning it would likely get a return on investment faster than Dell could.

Dell said on Monday it was still assessing the situation and declined to comment further on negotiations.

HP's bid was the most recent in a week-long volley of escalating offers, and people familiar with the matter told Reuters on Friday that the company has the financial firepower to go higher.

Some said Dell may yet match the last bid, forcing HP to again raise its offer price.

"It's definitely possible we might see another counter from Dell. But there's not a lot of headroom left," said Shannon Cross of Cross Research.

Morningstar analyst Michael Holt said HP may be using this deal to make a statement that it is business as usual despite the recent departure of Chief Executive Mark Hurd. He said the same of the company's announcement of more share repurchases.

"If Dell was hoping to take advantage of a void in leadership at its archrival, the gamble did not pay off," he said.

HIGH VALUATION

But some analysts said HP may end up with buyer's remorse after paying a high premium for 3PAR, whose stock price was hovering around $10 for most of the year until Dell's initial $18-a-share bid. The company has barely made a profit since its founding in 1999.

But others say 3PAR is worth it. The company specializes in data storage, a key part of "cloud computing" -- an increasingly popular technology that enables computer users to access data and software over the Internet, allowing companies to cut costs.

Some say a company like HP could easily double or triple 3PAR's sales in a few years, making it a smart deal.

"It looks like we've crossed the line of rational thinking," said Stifel Nicolaus & Co analyst Aaron Rakers, asked how much he thought the upper limit was.

"But you never know what these companies are banking in terms of revenue synergies."

Moreover, some say, owning storage technology could mean the difference between being one of the top five technology vendors along with IBM (IBM.N) and Cisco Systems Inc (CSCO.O), or being ranked below them, in several years.

3PAR competes with EMC Corp (EMC.N), Hitachi Ltd (6501.T), NetApp Inc (NTAP.O) as well as International Business Machines Corp, but specializes in high-end products and its technology is not easy to replicate.

HP's last offer on Friday of $30 per share beat out Dell's last offer of $27 per share, which had matched HP's previous offer.

(Reporting by Ritsuko Ando; Editing by Steve Orlofsky)

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Comments (2)
Dell or HP could build a business the size of 3par in 6 months time for 1/10 the cost of this deal

Aug 30, 2010 10:31pm EDT  --  Report as abuse
davext wrote:
Whoever wins this is just going to pass this cost onto their corporate customers. And who said cloud computing was going to be cheaper? At the end of the day, the costs will pass on to the consumer… as usual.

Aug 30, 2010 12:21am EDT  --  Report as abuse
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