Friday, August 27, 2010

HP’s $1.8 Billion 3Par Offer Steps Up Its Bidding War With Dell


Hewlett-Packard Co. escalated a bidding war with Dell Inc. yesterday, saying it would pay $1.8 billion for the computer-storage company 3Par Inc. and trumping an offer from Dell for the second time.

HP’s bid of $27 a share is 11 percent more than Dell’s $24.30-a-share offer, which 3Par had accepted earlier in the day. The public bidding kicked off on Aug. 16, when Dell said it would pay $1.15 billion, or $18 a share.

The escalating bids have boosted the price to about nine times the annual revenue of 3Par, which has lost money every year since going public in 2007. The premium reflects the urgency for both companies to use acquisitions to fuel growth and expand beyond personal computers. 3Par sells hardware and software that make it easier and cheaper to store information.

“One company wants to not only get it for themselves, but prevent a fierce competitor getting it,” said HP investor Mike Shinnick, who helps oversee $7.5 billion for Wasatch Advisors Inc. in South Bend, Indiana. “The real question is: Can you make that money off it going forward? It’s very questionable.”

After HP announced its latest bid, 3Par jumped 6.6 percent to $27.75 in extended trading yesterday, a sign investors expect the price to go up again. The shares had fallen 73 cents to $26.03 earlier on the New York Stock Exchange. 3Par, based in Fremont, California, had said it would pay Dell a $72 million termination fee if it accepts another acquisition proposal.

Proven Approach?

HP and Dell are chasing new areas of the growing market for data-center hardware and software, betting they can use their global sales forces to quickly ramp up revenue at 3Par, said Shannon Cross, an analyst at Cross Research in Livingston, New Jersey.

“You just literally can target a wider addressable market,” she said. “The model has been proven to work.”

John D’Avolio, a 3Par spokesman, declined to comment. Dell spokesman David Frink said his company plans to act “in the best interest of customers and shareholders.” Dell has the right to match or exceed the offer within three days of 3Par saying it considers HP’s bid to be superior, he said.

HP, the world’s largest PC maker, would gain higher-end storage products, helping it package its servers, storage and networking equipment for corporate customers, said Jeff Fidacaro, an analyst at Susquehanna Financial Group in New York. For Dell, owning 3Par would mean a chance to sell its own storage systems, rather than reselling products from EMC Corp., he said.

Better for HP?

3Par is “not setting the world on fire” in terms of profitability, though it is one of the few attractive storage companies available to buy, EMC President and Chief Operating Officer Pat Gelsinger said yesterday at a press event. HP would likely derive more value from 3Par than Dell by offering the products through its sales force, Gelsinger said. Hopkinton, Massachusetts-based EMC, which leads the market for storage computers, competes with 3Par.

HP’s latest offer values 3Par at 262 times the company’s earnings before interest, taxes, depreciation and amortization during the past year. In 20 deals in the past five years, acquirers paid a median 15 times trailing Ebitda, according to Bloomberg data.

3Par’s stock jumped 45 percent on Aug. 23, after HP announced its earlier bid. The shares closed at $9.65 on Aug. 13, the last trading day before Dell’s initial agreement was made public. Dell fell 4 cents to $11.75 in Nasdaq Stock Market trading yesterday, while HP declined 2 cents to $38.22 on the New York Stock Exchange.

Hurd’s Departure

Although HP is more than three times as profitable as Dell, it’s coping with the loss of its chief executive officer. Mark Hurd exited on Aug. 6, following a probe that found he filed inaccurate expense reports to conceal a personal relationship with a marketing contractor. He had led the company on an acquisition spree of more than $20 billion, expanding into products ranging from networking equipment to smartphones.

Dell, meanwhile, is trying to rebound from shrinking market share in PCs and tightening profit margins. This month, more than 25 percent of shareholders withheld support for CEO Michael Dell as a director.

Kaushik Roy, an analyst at Wedbush Securities in San Francisco, has predicted that HP will end up with 3Par.

“HP is going to win,” he said this week. “HP has the balance sheet to buy anything.”