Few, if any, expected Dell to win the weeks-long bidding battle for 3Par after HP slammed down a $2 billion bid for the company, trumping Dell's previous bid by almost $400 million.
Technically, Dell had three business days after HP submitted its Aug. 27 bid to counter the offer. Sometime last Wednesday evening, Dell submitted a final $32-per-share offer to 3Par, topping HP's bid by $2 per share. As it had before, HP didn't even flinch; at sunrise Thursday morning, it fired back, offering $33 per share or $2.4 billion.
The message to Dell from HP was clear: We will outbid you.
Dell walked away. But how badly was it really hurt? Dell got a $72 million deal termination fee from 3Par and HP gets to pay more than three times 3Par's market capitalization -- a price that's 11 times what it earned last year.
"Anytime companies get into a bidding war, the biggest winner is the company up for sale. [3Par's CEO] David Scott is sitting there smiling, as are his staff and his company's share holders," said Arun Taneja, lead consultant at Taneja Group in Hopkinton, Mass. "The only question that matters now is can HP make hay with it?"
In fact, HP's share price fell right after the 3Par purchase a sign investors were nervous that the company had overpaid for its prize.
John Bender, who once ran HP's mergers and acquisitions group and led the HP-Compaq merger in 2002, said his former company did not overpay for 3Par, and in fact, it needed a win after the contentious departure of CEO Mark Hurd.
While Dell wanted 3Par to build out a cloud services offering and boost it into the enterprise data center arena, HP needed 3Par for two reasons. One, it wants its own storage technology rather than reselling high-end arrays from Hitachi Data Systems. And two, "it's a strategic blocking move against Dell primarily," said Bender, managing director of Bender Consulting.
"It's also a strategic blocking move globally against companies like Acer," he continued. "Acer is number two in PCs and their CEO has gone on the record and said, 'I'm going after the enterprise.'"
According to bender, what many pundits and investors don't see is monetization of the cloud. "If you see how the cloud will take shape over the next three, five or 10 years, HP may have underpaid at the end of the day," he said.
So where does HP go from here? HP has noted that because 3Par is a Silicon Valley-based company, integrating workforces and products would be a far less daunting task than it would have been with Round Rock, Texas-based Dell. 3Par's Fremont headquarters is just across the San Francisco Bay, about 22 miles away from HP's Palo Alto base.
Dave Donatelli, general manager of HP's enterprise servers, storage and networking, said 3Par will help accelerate HP's converged infrastructure strategy, meaning its virtual data center and cloud computing capabilities. "We intend to invest in 3Par's technology to create long-term value for our stakeholders," he said in a statement.
3Par's Scott said HP will help it reach new customers around the world.
3Par's InServ storage servers offer not only a high-end primary storage solution for enterprise-class companies that want to create private cloud infrastructures, but it also allows HP to create its own public cloud that can be leased out to corporations. That infrastructure could be sold directly to corporations or leased by service providers who can then add their own applications to it and resell capacity to their own customers.
Tenaja said HP has not had the best success integrating acquisitions in the past. "Typically what happens is the product goes dark. You don't hear about it again," he said.
But, with former EMC executives Donatelli and Tom Joyce at the helm of this particular acquisition and integration, things are likely to be different this time. EMC has had success with many of its past acquisitions, such as data deduplication company Data Domain.
Donatelli had been EMC's top storage executive until he jumped ship last year. Joyce was EMC's vice president of storage platforms marketing before he joined HP in that same capacity earlier this year.
When EMC acquires a company, it tends to continue selling and supporting its products without missing a beat, allowing the company to operate as it had while gradually integrating the technology with its existing products.
"If I were a betting man, I'd say HP has a three-year time frame where 3Par becomes its high-end-to-upper-mid-range product," Taneja said. "It will take them that long to transition away from Hitachi Data Systems products, but only if they do a really good job at it."
Like Oracle/Sun, HP currently resells Hitachi Data Systems' Universal Storage Platform V (USP V). The USP V is a high-end storage platform that can be a front end to multi-vendor disk arrays.
3Par's technology differs from HDS' in that it is a grid-based architecture that grows in both capacity and processing power with each new shelf that's added to an array. Yet it can be managed by an administrator through a single interface.
3Par's InServ arrays have a multi-tenant architecture, meaning the same instance of its OS and applications can be shared by multiple organizations within a corporation, although various business groups cannot see each other's data. InServ servers also come with thin provisioning, which allocates only as much storage capacity as is needed by an application. The array also automatically reclaims capacity no longer in use based on pre-set policies.
What will HP do with its new acquisition? Bender thinks it will likely integrate 3Par's products with service provider giant EDS, which HP acquired in 2008.
"I do believe HP had that in mind from day one," he said. "There will be a strong link to EDS. Whether [it's] just from a professional services perspective to set it up for customers or a fully embedded business unit, time will tell. I would predict a fully-embedded business unit and product line over time, just like Amazon."
Where does this leave Dell?
Dell has been acquiring storage companies for the past two years. It bought iSCSI storage company EqualLogic in 2008, network-attached storage provider Exanet in February and data compression vendor Ocarina Networks last month as part of a strategy to gather best-in-class storage products.
3Par was critical to its attempt to become a full-line data center product company. For Dell, the pickings on the grid-based storage market are slim.
Options include Compellent Technologies, CommVault Systems, Isilon Systems, DataDirect Networks, and Pillar Data Systems, a privately-held company launched by Oracle's CEO Larry Ellison.
But the latter company's products tend to be geared toward SMBs, unlike 3Par, which already has a healthy share of the Fortune 1000 marketplace.
Dell followed HP into the service provider business when it purchased Perot Systems last year. And had it been successful with 3Par, Dell would have tightly integrated a cloud services offering with its Perot offerings.
"Dell has a major problem right now," Bender said. "They have to consider whether or not they should take the money they would have spent on 3Par and develop those capabilities internally."
But Dell won't be able to do that alone. It will need external business partners, technology alliances with other vendors, discrete mergers and acquisitions to build out the offerings and a strategic execution firm to pull it off, Bender said.
"I think Dell has had challenges executing in the past. For example, in the handset space and the PDA space," Bender said.
Randy Kerns, an analyst with The Evaluator Group, said Dell could also rebrand another company's virtualized storage array to create its cloud offering.
"Wouldn't it be ironic if they did a deal with Hitachi?" he said.
Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed . His e-mail address is firstname.lastname@example.org.