Dell, HP bidding war for 3Par heats up

HP's latest offer of $2B is tenfold premium over 3Par's market value

In less than two weeks, the bids for grid-storage vendor 3Par have nearly doubled, from $1.15 billion to $2 billion with Hewlett-Packard's latest tit-for-tat bid against Dell.

The two technology behemoths are fighting for what is arguably the last independent vendor of enterprise-class data storage on the market. But when do the offers become too outrageous? Or can they? 3Par, an 11-year-old company that sells a high-end, highly scalable storage platform, had sales of about $200 million last year, so the latest bid represents a tenfold premium over the revenue 3Par generates.

"Regardless of what anyone claims, money is the only factor that will determine the outcome," said Steve Duplessie, lead analyst at research firm Enterprise Strategy Group.

In the leapfrog battle for 3Par, HP has been more aggressive. Dell began the public process with an offer of $1.15 billion, or $18 per share, on Aug. 16. HP topped that with a $1.6 billion offer, or $24 a share. Dell's retort? Just a bit more -- an offer of $24.30 per share. HP quickly shot back again with an offer of $27 per share, which Dell matched the very next day. HP's response today? A whopping $2 billion, or $30 per share.

John Bender, who once ran HP's mergers and acquisitions group and led the HP-Compaq merger in 2002, said his former company knows exactly how high it will go.

"They have very sophisticated financial models. They'll know exactly at what point to walk away and when it makes sense from a cash flow and investment perspective to say 'We'll develop our own technology,'" said Bender, managing director of Bender Consulting.

If 3Par were to accept an HP offer, it would have to pay Dell, the original bidder, a $72 million termination fee, but that would be a small price to pay after receiving more than $2 billion from the winning bidder.

Scott Archibald, who once worked for HP and was responsible for the IT integration between HP and Compaq, said that while 3Par is a great technology company, it's far overvalued.

"You've got to wonder how much of this is emotionally driven versus a good business decision," said Archibald, who is also an analyst at Bender Consulting. "You've got to scratch your head as to why they're paying such a high premium for this company."

In an SEC filing regarding the 3Par offer, HP answered a list of frequently asked questions, the first of which was how much HP was willing to pay. In an answer reminiscent of the vague style of New England Patriots football coach Bill Belichick, HP wrote: "We are focused on today's new offer, which we believe is superior to Dell's existing proposal."

So no answer at all.

Bender said HP will win the bidding war with Dell, not just because it has deeper pockets -- HP has a larger M&A budget -- but also because it can do more with 3Par than Dell can.

"I believe they feel their direct and indirect sales markets will allow them to blow the doors off 3Par's volume. They're going to make this very painful for Dell to win," Bender said.

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