Dell Inc is readying a sweetened offer for data-storage provider 3Par Inc after its earlier bid was bested by a $1.6 billion proposal by Hewlett-Packard Co, according to a person familiar with the matter.
The offer may be sent in the coming days, said the person, who declined to be identified because the plans aren’t public. Last week, Dell had agreed to pay about $1.15 billion, however, it couldn’t be determined how much Dell had planned to boost its price. HP said yesterday it’s willing to pay more than twice what 3Par’s shares were worth before Dell’s bid was announced.
“At this point, the amount of premium these guys are paying is insane,” said Kaushik Roy, an analyst at Wedbush Securities in San Francisco. He has a neutral rating on 3Par’s stock. “It’s not about valuation at this point.”
In fighting a bidding war with HP, Dell is challenging the world’s largest computer maker and a company with almost $15 billion in cash. 3Par, which makes technology that helps companies store information, would give its new owner a leg up in a challenge to Cisco Systems Inc. and International Business Machines Corp in the market for data-centre products and services. HP and Dell are using acquisitions to move into businesses that generate higher margins than personal computers.
“HP is going to win,” asserted Roy. “Dell just doesn’t have that ammunition. HP has the balance sheet to buy anything.”
3Par rose $8.05, or 45 per cent, to $26.09 yesterday in New York Stock Exchange composite trading. The stock closed at $9.65 the last trading day before Dell’s bid. HP, based in Palo Alto, California, fell 81 cents to $39.04. Round Rock, Texas-based Dell lost 13 cents to $11.94 on the Nasdaq Stock Market.
While HP has about twice the sales of Dell and is more than three times as profitable, the company is coping with the loss of its chief executive officer. Mark Hurd stepped down on August 6, following a probe that found he filed inaccurate expense reports to conceal a personal relationship with a marketing contractor. Dell, meanwhile, is trying to rebound from shrinking market share in PCs and tightening profit margins. Last week, more than 25 per cent of shareholders withheld support for CEO Michael Dell as a director.
Jess Blackburn, a Dell spokesman, declined to comment, as did 3Par’s John D’Avolio and HP’s Rachel Decker.
3Par, based in Fremont, California, sells hardware and software that makes it easier and cheaper for companies to store information. In a regulatory filing yesterday, 3Par said two companies in addition to Dell expressed interest in acquiring the company. 3Par rejected an offer from one of the companies in July, according to the filing. Dell is already an investor in 3Par, with a 33 per cent stake as of August 15.
HP said on a conference call that it has been working on the proposed acquisition since before the departure of Hurd.
The offer is HP’s second bid for 3Par, Dave Donatelli, who heads HP’s storage and server division, said in an interview. The PC maker has been in talks with 3Par for “some period of time,” he said, declining to comment further.
HP’s offer values the unprofitable 3Par at almost 2.5 times its worth before Dell’s bid, and at more than eight times its sales of $194.3 million in the year ended March 31. 3Par’s revenue rose 5.2 per cent from 2009, and it has about 670 employees.
Dell and HP have expanded their data-centre businesses through acquisitions. HP bought Marlborough, Massachusetts-based 3Com Corp, a networking-gear maker, for $2.7 billion this year. Dell acquired EqualLogic Inc in 2007 for $1.4 billion as the foundation for its data-storage product. Last month, Dell agreed to buy closely held storage company Ocarina Networks and server- computer maker Scalent Systems Inc.
Other rivals are also racing to broaden their enterprise- technology businesses through deal making. Oracle Corp, the world’s second-biggest software maker, bought Sun Microsystems Inc for about $7.3 billion to expand in hardware.
3Par was co-founded in 1999 by chief technology officers Jeff Price and Ashok Singhal, who had earlier worked at Sun. CEO David Scott, who previously worked at HP, has held his position since 2001. Robert Rogers also co-founded the company.
The chairman is Kevin Fong, a former managing partner at Mayfield Fund, a Silicon Valley venture-capital firm that invested in internet shares as the dot-com bubble burst in 2000.
3Par will add to HP’s strategy of combining storage, server and networking products, Donatelli said in the interview. The company will increase 3Par’s revenue by selling its products overseas and investing in its research and development, he said.
If HP completes the deal, it would be its third purchase of more than $1 billion in less than a year. The company agreed to buy 3Com in November, and in April it agreed to pay $1.2 billion for smartphone maker Palm Inc.
JPMorgan Chase & Co is HP’s investment bank on the deal, and Cleary Gottlieb Steen & Hamilton is its legal advisor.