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NEW YORK (Reuters) - Hewlett-Packard Co offered to pay $1.6 billion for 3PAR Inc, topping rival Dell Inc's bid by a third in a surprise move that could spark a bidding war for the data storage company.
Shares in 3PAR soared 45 percent to above HP's $24-a-share offer, showing investors were anticipating a higher bid.
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. Its scarcity value means bidders might be willing to pay more than 3PAR appears to be worth on paper.
"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.
Analysts expect acquisitions to heat up as the likes of HP, International Business Machines Corp and Oracle -- hoarding large cash piles and eyeing low stock prices -- expand into new areas to offer a fuller range of products spanning hardware and software.
August has been an unusually active month for deals, following Intel Corp's $7.7 billion bid for security software maker McAfee Inc last week. Companies are also buying their way to revenue growth as they chart their way out of recession, according to some investors.
"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 sidelined from mergers and acquisitions after Chief Executive Officer Mark Hurd resigned this month.
Executives waved off suggestions that a leadership vacuum would keep the company out of deals. Hurd resigned August 6 after a marketing contractor alleged she had lost work because she did not have sex with Hurd, according to a source.
Dave 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," said the head of HP's enterprise server, storage and networking business.
HP shares fell 2 percent to $39.04. Shares of 3PAR, which made a loss on revenue of $194 million in its last fiscal year, jumped 45 percent to $26.09.
HP has diversified beyond computers with the help of bold acquisitions under Hurd, including 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.
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.
Some analysts said there could be more such bidding wars as large vendors seek out the remaining niche technology firms.
Bidding wars are rare in the tight-knit 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 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 technology heavyweights like Cisco Systems Inc, in addition to IBM and Oracle, are vying to broaden their product lines and become one-stop shops for all of their customers' technology needs.
3PAR is advised by veteran technology banker Frank Quattrone and his outfit Qatalyst Partners, according to a source familiar with the matter. Quattrone, Silicon Valley's star banker before being tried twice for attempting to hinder federal investigators, also advised Palm in its takeover by HP this year. Charges against him were dropped.
HP made a bid for 3PAR even before Dell announced its deal, said Donatelli. The company made its initial bid in July, according to the source, but held off while 3PAR was in exclusive talks with Dell.
3PAR Chief Executive David Scott used to head HP's enterprise storage business. Founded in 1999, it is headquartered in Fremont, California -- sharing a Bay Area address with Palo Alto-based HP. Dell is based in Texas.
HP said it was awaiting a response from 3PAR. Dell was not immediately available, and 3PAR declined to comment.
The $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 of about $9.65.
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 and Compellent rose over 12 percent, as the high premium of HP's offer spurred hopes for more deals.
HP said its proposed acquisition would close by the end of the year, adding it would not expect a material negative impact on earnings in the 2011 fiscal year. JPMorgan is advising HP.
Additional reporting by Paul Thomasch, Liana Baker and Franklin Paul; Editing by Edwin Chan, Lisa Von Ahn, Gerald E. McCormick and Bernard Orr