Within a week after Dell Inc. (DELL) announced an agreement to acquire 3PAR Inc. (PAR) for a total consideration of $1.15 billion, the world’s largest PC maker, Hewlett-Packard Co. (HPQ) made a counter bid. The intense contest for 3PAR is reflective of both Dell and HP’s goal to expand beyond personal computers to markets that could generate higher profits.
HP has offered a hefty $1.6 billion or $24 per outstanding common share of 3PAR. The total consideration reflects a 33% premium over Dell’s cash consideration. HP exited the recently concluded third quarter with a strong cash balance, which indicates that it could easily snap up an acquisition such as this one.
On August 16, Dell had signed a definitive agreement to acquire enterprise storage products manufacturer 3PAR Inc. in an all cash deal of $1.15 billion, reflecting $18 per outstanding common share of 3PAR. The offer price was an 86.5% premium over the closing price of the day before the deal was announced. Dell intended to integrate 3PAR’s storage solutions into its innovative storage portfolio to offer targeted solutions for every storage vertical.
Founded in 1999, 3PAR evolved as the leading provider of systems and software for data storage and information management. 3PAR pioneered in the creation of “thin provisioning,” which is a mechanism that applies to large-scale centralized computer disk storage systems, Storage Area Networks (SANs) and storage virtualization systems. Thin provisioning allows easy allocation of space to servers, as and when required. 3PAR’s primary competitors in the enterprise storage market are EMC Corp. (EMC), Hitachi Data Systems, International Business Machines Corp. (IBM) and HP.
With the acquisition, HP intends to strengthen its innovative Converged Infrastructure solutions. The solutions bring together servers, storage and networking products to manage a data center from a common platform. 3PAR’s broad array of storage solutions would further augment HP’s converged infrastructure offerings, thus enabling the company to deliver an even broader platform to customers.
In today’s technology-driven world, the enterprise storage space is one of the most enviable growth areas. This is bringing in many players and intensifying competitive pressures. Under the circumstances, if 3PAR’s board approves the deal on its financial merit, Dell’s endeavors to grow in the space would likely suffer. Additionally, HP would effectively kill off a rival.
We look forward to 3PAR’s decision. Upon approval, HP expects to close the deal by the end of calendar 2010.
HP has a strong business model, and still rules the computing world, with a leadership position in both PC and Server segments. HP is also well positioned to challenge networking leader Cisco Systems Inc. (CSCO), and gain share in the networking market. The company also expects to benefit substantially from the increase in IT spending and has offered an encouraging guidance for fiscal 2010.
Despite the company’s market position and compelling product line, we remain cautious about future growth, especially on the consumer side. We continue to believe in the growth story of the company, but would like to witness better performance from its printing unit in the coming quarters.
Hence, we currently have a short-term Hold rating on HP shares, which equates to a Zacks #3 Rank.
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