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Aug. 27, 2010

In the now two week-long battle for HP and Dell in trying to get their hands on software maker 3Par, the stock has now shot through the roof and some observers think it could go still higher, as 3Par stock this morning is trading at between US $31.75 to $31.86. HP's latest offer before the market opened this morning was $30, three dollars less than what Dell had offered just minutes earlier.

Based in Fremont, California, 3Par sells hardware and software solutions that make it easier and less costly to store data on enterprise servers.

Both Hewlett-Packard and Dell are now betting that they can ramp up revenue at 3Par by using their respective sales forces to sell more of their gear in the rapidly growing market for data-center equipment, said Shannon Cross, a financial analyst at Cross Research in Livingston, New Jersey.

HP's latest bid for the company at $30 a share places a $2 billion price tag on the company.

Dell said earlier today it would pay $27 a share for 3Par, matching Hewlett-Packard’s previous bid yesterday. Dell said in a statement that its earlier bid had been accepted by 3Par’s board. Dell started the public bidding at $18 a share on Monday, August 16.

Aaron Rakers, an analyst at Stifel Nicolaus & Co. says “They’re playing hardball, no question about it. It's now obvious that both HP and Dell have something to prove.”

HP’s latest offer represents an eleven percent premium over Dell’s previous bid this morning and isn't subject to outside financing, HP said in its statement. Under its agreement with 3Par, Dell has the opportunity to match other acquisition offers, and Dell will be paid a termination fee of $72 million if 3Par accepts an alternative offer, either from HP or another bidder.

The two rapidly escalating bids have boosted the proposed price to about ten times the annual revenue of 3Par, which has lost money every year since going public in 2007.

The premium for 3Par now reflects the utmost urgency for HP, Dell and other server manufacturers to use acquisitions to fuel growth and expand beyond personal computers.

3Par's stock closed at $9.65 on August 13, the last trading day before Dell’s first agreement was made public.

In addition to strengthening its storage offerings, HP wants to show it can win the deal after losing its chief executive officer, Rakers said. Former CEO Mark Hurd exited August 6, following a probe that found he filed inaccurate expense reports to hide a romantic relationship with an outside marketing contractor and former actess.

Hewlett Packard, the world’s largest server maker would gain higher-end storage products, helping it package its servers, storage and networking equipment for corporate customers, said Jeff Fidacaro, an analyst at Susquehanna Financial Group in New York.

For Dell, owning 3Par would also mean a chance to sell its own storage systems, rather than reselling products from EMC Corp.-- definetaly a big advantage for the company.

This morning's latest offer at $30 from HP values 3Par at 293 times the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) during the past year.

In the twenty or so deals done in the past five years, acquiring companies paid a median of about 15 times trailing EBITDA, according to various IT market analysts in New York.

It will be interesting to see when and how all of this ends at at what price. Some are now saying HP (or whoever the winner is) might have to pay $35 or more to get full ownership of 3Par.

We will keep you posted on this and other stories.

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Source: ITIFN.

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