HP knocks out Dell for 3PAR with $2.4-bn bid

The battle for control of virtual data storage company 3PAR ended yesterday after Dell ended talks and walked away $72 million richer from the unprecedented 18-day bidding war for a technology company that has barely made a profit in its 11 year existence.

As soon as Dell increased its offer price for 3PAR from $27 per share to $32 per share yesterday, Hewlett-Packard (HP) immediately counterbid with a $33 per share offer, valuing the Fremont, California-based 3PAR at around $2.4 billion and outbidding Dell for the fourth time in 18 days.

Texas-based Dell, the world's third-largest PC maker after HP and Acer, threw in the towel and said that it would not increase its most recent proposal to acquire 3PAR, and terminated further discussions with the virtual storage firm.

''We took a measured approach throughout the process and have decided to end these discussions,'' said Dave Johnson, senior vice president, corporate strategy of Dell.

Before the 2 September deadline ran out for Dell to outbid HP's $27 per share offer, Dell increased its bid from $27 per share to $32 per share and once more raised the termination fee from $72 million to $92 million payable by 3PAR to Dell as a condition for accepting its superior proposal.

Dell's proposal also included a multi-year reseller agreement that contained fixed pricing and other terms, which would be binding on 3PAR even if it was acquired by HP or a third party. The board of directors of 3PAR rejected the proposal as it determined that Dell's revised terms were unacceptable.

The board of 3PAR then accepted HP's revised $33 per share proposal and notified Dell of its intention to terminate the merger agreement it had signed on 16 August with Dell.

HP's latest offer is more than three times of 3PAR's closing stock price yesterday, which closed at $32.65 in New York Stock Exchange and a jump of 348 per cent from the nearly $9.65 per share prior to Dell's first bid made on 16 August 2010. (See: Dell to acquire data-storage company 3PAR for $1.13 billion)

Sequence of bidding
3PAR share price
Bidder Bid offer
16 August
Dell offers to buy 3PAR
$1.13 billion or $18 per share
23 August
HP makes counter offer
$1.58 billion or $24 per share
25 August $27.60
Dell matches HP's offer
$1.6 billion or $24.30 a share
27 August
HP raises offer
$1.8 billion or $27 a share
27 August $30.58
Dell matches HP's offer
$1.8 billion or $27 a share
28 August $32.46
HP once again raises offer
$2 billion or $30 per share
2 September $32.65
Dell matches HP's offer
$2.3 billion or $32 per share
2 September $33.70
HP raises offer once again
$2.4 billion or $33 a share
2 September $33.70
Dell backs out

HP's offer is also about 10 times 3PAR's total revenue over the past four quarters.

For 2009, 3PAR reported revenues of just $194 million, which is less than 1 per cent of the 2009 revenues of either HP or Dell.

HP's $33-a-share offer values 3PAR at over eight times sales, and multiples above five are considered lofty in technology deals. HP's offer is also at 325 times the company's Ebitda during the past year.

In 21 computer-services deals in the past five years, acquirers paid a median 16 times trailing Ebitda, according to Bloomberg data.

In fact, Dell's first offer of $1.13 billion or $18 per share for 3PAR was itself a premium of 87 per cent, which is considered high in the technology sector.

The unprecedented bidding war for a technology company reflects the emerging strategic importance of data storage firms to computer companies.

The last such bidding war in the technology sector was in 2009, when another data storage company EMC Corp outbid NetApp to buy Data Domain for $2.1 billion in the month-long bidding war. (See: EMC wins $2.1-billion bidding war for Data Domain)

Data Domain had paid NetApp a $57-million termination fee under the terms of the previously announced merger agreement, just like 3PAR will now have to pay Dell a termination fee of $72 million.

Incidentally, the acquisition target Data Domain was advised by technology banker Frank Quattrone, who also was the adviser for 3PAR in the current deal.

Analysts had always favoured HP in the bidding war ultimately since its turnover is more than double than Dell's 2009 revenue was $52.9 billion and $15.5 billion in second quarter 2010, compared to HP's revenue for 2009 of $114.2 billion and $30.7 billion in second quarter 2010.

Though, it opted to walk away from 3Par, Dell did not lack the financial muscle since it nearly matches its bigger rival in cash on hand; Dell is reported to have around $12.4 billion in cash and short-term investments, while HP had $14.7 billion.

Investors in both the suitor companies have asked whether it would be prudent to pay a premium of over 300 per cent for a company that has barely made a profit since it was founded in 1999 and has major competitors like EMC Corporation Japan's Hitachi Ltd, and IBM.

3PAR is a global provider of utility storage, a category of highly virtualised, dynamically tiered, multi-tenant storage arrays built for public and private cloud computing.

Its virtualised storage platform is built to be agile and efficient so as to eliminate the limitations of traditional storage arrays for utility infrastructures.

3PAR customers include medium-to large-sized enterprises, business-oriented service providers, consumer-oriented Internet/Web 2.0 companies, financial service firms, and government entities.

3PAR says seven of the world's top 10 revenue-generating managed service providers, including Savvis, Verizon Business, and Terremark use its Par Utility Storage platform.