August 27, 2010 / 11:20 AM / 7 years ago

HP raises 3PAR offer to $2 billion

NEW YORK (Reuters) - Hewlett-Packard Co raised its offer for 3PAR Inc to $2 billion, once again topping Dell Inc's bid and showing it had plenty of ammunition in a bidding war for the data storage company.

HP's offer on Friday of $30 per share was the latest in a week-long volley of escalating bids, and came less than 3 hours after Dell announced 3PAR had accepted its bid of $27 per share, which matched HP's previous offer.

Analysts say HP may be the stronger bidder with $115 billion in annual revenue compared with Dell's $53 billion, and a more global sales force that could help 3PAR grow faster. HP's bids have also been bolder, while Dell has mostly moved to match its rival.

"It's strategically important to both companies. But given the bidding behavior, I feel like HP's in this to win it," said Dinesh Moorjani, analyst at Gleacher & Co.

Dell's prior agreement with 3PAR, however, allows it to match competing bids, and the company said it was assessing the latest move, which has raised 3PAR's valuations to what some analysts see as unreasonable levels.

"We'll act in the best interest of our customers and our shareholders, and the long-term value creation for both," said Dell spokesman David Frink.

3PAR shares closed 24.7 percent higher at $32.46, indicating investors expect an even higher bid to emerge.

The shares had mostly traded around $10 this year, until Dell announced its $18 per share bid earlier this month.

If it wins, HP would also need to pay the breakup fee of $72 million that is part of the Dell-3PAR deal. HP said that once the deal is accepted by 3PAR, it will close by the end of the year.

HIGH VALUATION

August has been a particularly active month for deals. Intel Corp bid $7.7 billion for security software maker McAfee Inc last week.

The bids for 3PAR come as Dell, HP and other large technology vendors like International Business Machines Corp and Cisco Systems Inc have been expanding into new technologies to offer corporate clients a wider range of products and services.

3PAR specializes in high-end 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.

It competes with EMC Corp, Hitachi Ltd, NetApp Inc and other companies offering storage products.

But 3PAR has barely made a profit since its founding in 1999, and some analysts say the rapid-fire bidding has raised the risk of buyer's remorse, as egos take over and rational assessments of valuations take a backseat.

At current bids, 3PAR is valued at around eight times sales. Multiples above five are considered lofty in technology acquisitions.

Some say Dave Donatelli, who is leading HP's efforts, may see the deal as a test for his candidacy to replace Mark Hurd, who resigned from his CEO role following allegations of sexual harassment.

Michael Dell, for his part, has been struggling to improve profitability at the company, which has been steadily conceding market share to HP and Acer Inc. He was reelected

to his company's board this month with more than a quarter of the votes withholding support, reflecting shareholders' displeasure with his tenure as CEO.

"I only hope that HP does not overpay just to show that it can execute on its so-called strategy without a permanent CEO. I also hope that Dell is not acting desperate to rapidly build its capability for enterprise IT services in an uncertain economic environment," said Boston University Professor N. Venkat Venkatraman.

HP shares, which closed down 0.6 percent at $38.00 on Friday, have fallen 4.6 percent this week on worries of overspending. Dell shares rose 1.2 percent Friday, but were still down about 1.5 percent from a week earlier.

Some say, however, the company may be worth more than traditional metrics suggest, since its high-end storage technology is so hard to replicate and its sales could grow exponentially with the massive sales channels of Dell or HP.

"On the face of it, it looks expensive, but if you make the assumption that they could double revenue, then it doesn't seem too expensive," said Gleacher's Moorjani.

Brenon Daly, financial analyst at The 451 Group, said the latest bid may be a defensive play, to keep Dell from becoming a top vendor in enterprise technology.

"Is it an expensive price? Yes, absolutely. But, from HP's perspective, it could be, down the road, expensive to let Dell come up into enterprise," Daly said.

The bidding war, a rare occurrence in the tech sector, started earlier this week when HP bid $24 a share for 3PAR, topping Dell's previous $18-per-share deal.

In the last notable bidding war in the tech industry, EMC outbid NetApp last year to buy Data Domain for $2.4 billion. Data Domain was advised in that deal by Frank Quattrone, the same veteran technology banker who is advising 3PAR in the latest negotiations.

Credit Suisse Group AG is advising Dell and JPMorgan Chase & Co advised HP.

The latest bids have also sparked speculation that other storage-related companies like Isilon Systems Inc and Compellent Technologies Inc could become the next target. Isilon shares closed 5.7 percent higher while Compellent shares were up 15.2 percent.

Reporting by Ritsuko Ando and Soyoung Kim; Additional reporting by Paritosh Bansal and Megan Davies; Editing by John Wallace, Dave Zimmerman, Matthew Lewis, Gary Hill

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