The Wall Street Journal
It wasn't the biggest bidding war the tech world has ever seen. But when it ended Thursday morning—after 10 days of all-night strategy sessions, hardball phone negotiations and power naps on couches—the battle between titans Hewlett-Packard Co. and Dell Inc. for a humble maker of data-storage systems certainly qualified as one of the wildest ever.
Winner H-P and runner-up Dell both offered fat premiums for 3PAR Inc. The company traded for less than $10 a share before Dell announced its intent to acquire it on Aug 16. H-P's winning $2.1 billion offer, or $33 a share, far surpasses Dell's original $1.1 billion bid. H-P and Dell both say they wanted 3PAR, a player in the fast-growing field of "cloud computing," to help drive their growth.
The frenzy sent 3PAR stock soaring into the stratosphere, more than tripling in just over two weeks. The bids went "into a land of dreamed-up future payoff," said Rob Cihra, an analyst at Caris & Co. In the end, he said, the bidding crossed the line into "a battle for pride more than 3PAR."
The duel was far from settled as recently as late Wednesday, said people familiar with the matter, as Dell vacillated between dropping out and pushing forward with yet another proposal for 3PAR.
Dell's bankers and lawyers had already worked around the clock for more than 48 hours on several proposals that they sent to 3PAR's advisers, snatching only a few hours of sleep in between. Late Wednesday, Dell considered withdrawing from the bidding entirely. Then it changed course, and launched a $32-a-share offer that came with a new set of conditions attached.
Even as Dell agonized, H-P's executives and advisers monitored Dell's moves through "the grapevine," said a person familiar with the matter. After hearing Dell might have a revised proposal, H-P moved ahead with a $33-a-share offer that it had prepared several days earlier to preempt a further escalation of the bidding war. H-P had been "sitting on its hands for five days," long enough to have sketched out its responses to Dell's potential moves, this person said.
Tech titans H-P and Dell have a history of feuding. They have often poached one another's executives. H-P overtook Dell as the world's largest PC maker by units in late 2006. They have both been mining the same territory to expand into new businesses.
This latest drama unfolded simultaneously in Dell's headquarters in Round Rock, Tex.; in H-P's Palo Alto, Calif., headquarters; 3PAR's offices in Fremont, Calif.; and in white-shoe investment banking offices in San Francisco and New York. Top executives such as Dell chief executive Michael Dell were kept constantly apprised on the fast-moving talks via email and phone briefings, said people familiar with the matter.
Bidding wars and hostile takeovers were once anathema in Silicon Valley, where deal-makers preferred to negotiate friendly arrangements between companies that shared similar work cultures. But as tech darlings such as Oracle Corp., Microsoft Corp. and Cisco Systems Inc. have become sprawling, maturing behemoths, their search for new sources of growth has introduced an era of more combative deal-making.
Oracle was one of the first companies to employ the hostile tactic—buying rival PeopleSoft in 2004 after an 18-month pursuit. Last year, International Business Machines Corp. was close to a deal to buy Sun Microsystems when Oracle swooped in at the last minute with a winning $7.4 billion bid. Not long after, EMC Corp. fought rival NetApp Inc. over Data Domain, a niche storage-technology company that it had coveted. Data Domain, which initially agreed to sell itself to NetApp for $25 a share, or $1.5 billion, eventually went to EMC for $33.50 per share, or about $2.4 billion.
3PAR is particularly prized because it makes storage products that are part of the field of "cloud computing," in which businesses store information in data centers operated by specialists and access that information over the Internet. A spokesman for 3PAR declined to comment.
The lofty winning offer translates to hefty riches for 3PAR investors including venture-capital firms Mayfield Fund, Menlo Ventures and Worldview Technology Partners. In addition, mutual-fund giant Fidelity Investments is among 3PAR's biggest institutional shareholders. Among individuals, 3PAR CEO David Scott, who is a former H-P executive, will reap around $100 million for his stake in the company.
Founded in 1999, 3PAR went public in 2007 and had been in the sights of H-P and Dell for some time. While 3PAR had posted losses for its past three fiscal years, it was considered a growth company—posting $194 million in revenue its fiscal year ended in March, up from $118 million two years earlier—with a hot technology.
On July 8, H-P contacted 3PAR about a potential acquisition, and executives from the two companies—including 3PAR CEO Mr. Scott and then H-P CEO Mark Hurd—met to discuss the parameters of a possible deal the next week. 3PAR's directors quickly hired Qatalyst Partners LLP, which is run by industry insider Frank Quattrone.
That same month, Qatalyst, which declined to comment, ran a mini-auction for 3PAR. In addition to Dell, which 3PAR had held discussions with about a reselling partnership, the bankers invited two more companies to join the bidding, which people familiar with the matter identified as Oracle and NetApp.
Oracle and NetApp soon dropped out, leaving Dell and H-P. In late July, H-P and Dell put in their first offers, with Dell indicating it would pay $15 to $17 a share and H-P's offer in the "mid-teens," said people familiar with the matter.
Dell soon agreed to pay $18 per share, if 3PAR entered into two weeks of exclusive negotiations, according to regulatory filings. 3PAR's advisers asked H-P if it would raise its offer, but H-P declined on Aug. 1, partly because it wasn't convinced of the seriousness of another suitor's interest in 3PAR, people familiar with the matter said.
On Aug. 16, Dell announced its intent to acquire 3PAR for $18 a share. With 62.5 million shares outstanding, the bid was valued at about $1.1 billion. That might have been the end of the story, especially since less than two weeks earlier, H-P CEO Mr. Hurd unexpectedly announced his resignation. Typically, when a company loses its chief, all strategic business is put on hold until a replacement is named. Not so in this case.
When H-P learned it was up against Dell, said people familiar with the matter, a team of executives laid out the steps they would take to thwart their rival's every possible move. A person familiar with the matter said H-P's board had pre-approved a deal for 3PAR so that the company's executives were free to make new bids without first getting clearance from the board.
On Aug. 23, H-P offered $24 per share for 3PAR.
Dell's original agreement with 3PAR gave it the right to match any counteroffer, and it came back with a $24.30-a-share bid the following day.
But H-P was "in this to win it," a person familiar with the matter said last week. Last week, H-P twice raised its bid in $3 increments, eventually offering $30 per share, or about $2 billion. "It was just adrenaline that kept people going," said one person familiar with the matter.
At Dell, mergers and strategy chief Dave Johnson, along with Mr. Dell and other senior members of the deals team and adviser Credit Suisse, considered several options to save its deal to buy 3PAR via conference calls, text messages and emails, according to people familiar with the matter. As a Wednesday deadline for Dell's response approached, some advisers pulled all-nighters at the office, sneaking in power naps on office couches.
Late Wednesday, Dell put forth its final revised proposal for 3PAR, indicating it would pay up to $32 a share if 3PAR's board agreed to include a commercial agreement and a $92 million break-up fee. But 3PAR's board balked at the idea of a commercial agreement that would have required 3PAR to sell equipment to Dell even if H-P were to buy the company, said a person familiar with the matter.
Early Thursday, Dell decided to drop out entirely, after 3PAR's board rebuffed its revised proposal yet again, people familiar with the matter said.
But H-P had heard word that Dell had a revised proposal in the works, people familiar with the matter say. H-P executives and advisers, including J.P. Morgan Chase & Co., grew worried when no announcement came. Through the night, the H-P camp pumped their sources to figure out what Dell might be planning, even as Dell and 3PAR continued to negotiate, these people said.
Around 8:30 a.m. Thursday morning, H-P representatives called 3PAR preemptively and bumped their offer to $33 a share, people familiar with the matter said. 3PAR's Mr. Scott was walking up the stairs in a London restaurant to find a quiet corner where he could dial into a board meeting to make a final decision, when the offer came in. About nine hours later, the two sides had struck a deal.
