First, the "news," in case you haven't been following it.
On August 16, Dell "agreed to acquire" 3PAR for $1.15 billion ($18 per share for the common stock). David Scott, President and CEO of 3PAR was warm in his endorsement of Dell: "With Dell we combine a powerful, virtualized storage platform with an outstanding distribution network to deliver this value to an even broader set of customers". In other words, Dell offers the market reach to make the best of 3PAR's virtualized storage solutions.
[Update: As of September 2, HP appeared to win the bid to acquire 3PAR. Read the details in this story.]Then the fun began.
- A week later -- last Monday, August 23 -- HP announced their interest in acquiring 3PAR, at $1.6 billion, a hefty 33% above Dell's offer (~ about $24 per share).
- Then on Thursday, August 27, Dell upped its ante to $24.30 per share.
- In response, HP boosted the bid to $27 per share. Dell immediately matched.
- The frenzy continued Saturday August 29, when HP reached higher, with an offer of $30 per share.
- At last check, Dell was considering whether to continue the battle.
Analysts agree on a few things:
- What 3PAR brings to Dell or HP is its leading-edge position in storage virtualization, which both HP and Dell clearly covet.
- Then, there are the numbers: Dell has gross margins of 18 percent, HP has margins of 23 percent... and 3PAR has margins of over 60 percent.
- Dell can certainly bring enterprise sales capabilities to 3PAR…but HP is even better positioned to do so.
- HP, with $115 billion of annual revenue compared with Dell's $53 billion, has deeper pockets.
Yet, numbers alone can hardly justify this crazy valuation of 3PAR (until a few weeks ago, 3PAR's stock was lingering around $10); clearly there are compelling factors beyond the numbers.
Dell's move to acquire 3PAR has multiple dimensions to it: the need to shore up its wilting presence in the enterprise IT market; the synergies between its product lines and 3PAR for enterprise storage; an attempt to prop up its depressed stock and salvage some of its battered reputation; and last but not the least, a strong show of helmsmanship (dare I say "a helmsmanlike move"?) from CEO Michael Dell.
On its part, HP's move is telling in multiple ways too. For one, the quick response indicates that HP was already tinkering with the thought of hooking 3PAR. It is also a solid indication -- and a welcome one -- that HP isn't waiting around too long to settle down from the Mark Hurd controversy, and is ready (indeed, eager) to move ahead. (As a completely side issue, this forceful move might also help settle the leadership crisis at HP.) Then, of course, HP too is a solid contender in the storage market, and understandably doesn't want the competition to get a leg up here.
Beyond all the qualitative and quantitative factors, HP and Dell are betting -- as are so many others these days -- that virtualization and cloud computing are the storage of the future. (Yet, ironically, this is not too much of a safe bet, according to Forrester analyst Andrew Reichman, who has argued that business users are not quite ready for cloud storage.)
So who's going to win the battle for 3PAR? Reuters surveyed eight analysts and returned the verdict: HP. Dell has until Wednesday September 1 to respond, and is expected to throw in the towel.
I agree, and would like to also add to the list of winners: 3PAR investors (sadly, myself not included).Of the many reasons why HP and Dell are wooing 3PAR, only one actually has to do with 3PAR... Beyond all the qualitative and quantitative factors, HP and Dell are betting that virtualization and cloud computing are the storage of the future.