Dell Inc.’s bidding war with Hewlett-Packard Co. over a promising data-storage technology firm could be nearing resolution, although the price for 3Par Inc. could top $2 billion.
One analyst said the weeklong duel between the tech giants has pushed the price for 3Par into “nosebleed territory.”
As of Friday afternoon, H-P had the high bid on the table of $30 a share, or about $1.9 billion — 67 percent more than Dell’s initial bid of $18 a share on Aug. 16. Dell has three days to make a counter bid.
Analysts say that both computer companies have deep enough pockets to keep raising the price but that the winning company risks a potential rebellion by its shareholders if they believe it overpaid.
“We are relatively close to the upper limit of what either company can justify,” said industry analyst Rob Enderle with the Enderle Group.
If Dell prevails, 3Par would be its second-largest acquisition, following its $3.9 billion purchase last year of Perot Systems Inc., a much larger company than 3Par, which has not made a profit since 2007 and has annual revenue of about $200 million.
“The economics of this deal stopped making sense a long time ago,” said financial analyst Ashok Kumar with Rodman & Renshaw. “The limit (to bidding) is shareholder patience. At some point, they are likely to say, ‘Enough is enough.’ Then they will start to question the sanity of (the companies’) management.”
Computer industry analysts say Dell and H-P see 3Par as a key piece in their long-term strategies, rather than as a target to help them generate profits in the short term. They say 3Par has a big enough technical edge in data storage to help either computer maker attract more corporate customers, whom they are courting with a broadening menu of technology hardware, software and services.
“Both of them look at 3Par as a critical steppingstone to their future, and neither one wants to give that future up,” Enderle said.
Both Dell and H-P expect to see a big shift in the way large and midsize corporations run the data centers that contain critical information for them and their customers.
The new driving force is called “virtualization,” which enables companies to rapidly shift data and software applications from computer to computer as their needs shift during the day. The net result is that more work gets done on fewer machines, which saves money.
3Par, analysts say, has a lead in extending the virtualization trend into high-performance storage networks.
The analysts say 3Par would give Dell the competitive edge it wants to form deeper ties to major customers. H-P sees it as a way to compete better against computer companies with stronger software offerings, such as Oracle Corp . and IBM Corp., Enderle said.
“3Par is the pick of the litter among the smaller storage players,” said Charles King, an analyst with Pund-IT. “It is going to be a plum for whoever wins it. It comes down to who wants it badly enough and how much pain you are willing to endure for the long-term benefits.”
The company has been on H-P’s radar screen for some time, based on 3Par securities filings this week.
According to the documents, H-P executives held talks with 3Par throughout much of June and July about a potential acquisition. H-P submitted a nonbinding “indication of interest” on July 23.
Five days later, 3Par’s investment adviser told H-P it would have to raise its proposed purchase price, which was not disclosed. By Aug. 1, H-P had failed to increase its proposed price.
Fifteen days later, 3Par announced its agreement to be sold to Dell for $1.15 billion. It wasn’t clear how long Dell had been eyeing the company.
H-P swooped in Monday with its first counteroffer, of $24 a share, and the bidding has escalated all week. Thursday afternoon, H-P raised the ante to $27.
That night, according to the filings, CEO Michael Dell and David Johnson, the company’s top acquisitions strategist, both called 3Par CEO David Scott to say they planned to match the $27 offer.
3Par’s board met late Thursday night to accept the offer, which was announced publicly early Friday morning. H-P quickly raised its offer to $30.
Analysts say 3Par clearly would prefer to be bought by Dell but cannot afford to ignore H-P’s higher offer.
Dell’s proposal includes management contracts for 3Par’s senior management, while H-P has a recent track record of treating acquired companies harshly.
H-P has acquired a sort of “roach motel” reputation on acquisition deals, King said. “They go in, but nobody comes out.”
3Par shares closed Friday at $32.46 , indicating that some investors think the bidding could go higher. However, under the terms of Dell’s initial agreement with 3Par, Dell needs only to match H-P’s bid to come out the winner.
Source:http://www.statesman.com/business/technology/dell-h-p-bidding-war-could-be-nearing-884022.html
