Anyone that has been paying attention to the saga that has become the Dell/HP bidding war for storage maker 3PAR has to think that this has gotten out of hand. The latest offer from HP of $30 a share represents an astounding 211% premium over the value of where 3PAR’s stock was trading only a few weeks ago. Even a multi-million dollar termination fee, currently somewhere in the neighborhood of 72 million for 3PAR if they don’t sell to Dell, isn’t enough to derail them from actively considering HP’s offer – and it shouldn’t. The goal for 3PAR’s board is to get maximum value for their shareholders and when you’re in a situation where you barely even have to do anything to make that happen, you just sit there and stay quiet.
Lots of people are wondering what makes 3PAR so special, the answer is nothing really. The company makes excellent storage products, but hasn’t turned a profit since it went public back in 2007. So why then would two of tech’s biggest giants get into a billion dollar squabble over it, we need only to look to the clouds, cloud computing that is. Cloud computing is seen as the next big wave in the technology industry, it will enable companies to store and then access their corporate data from data centers that could be anywhere in the world. However, in order to do this you need some very high end servers and that my friend is where 3PAR comes in. Both companies have storage businesses, but neither company has a high end storage business over their own.
Some analyst predict spending by companies on cloud computing to increase by over 25% percent every year for the next four to five years and becoming a $60 billion a year business by then. HP and Dell are essentially trying to know what their customers will need before they do and position themselves in advance. At this point you are probably asking, but aren’t their other high-end storage companies that they could go after, and the answer is yes, but with some caveats. The other big players in this sector are IBM (not a chance), EMC (again not a chance) and Hitachi Data Systems (owned by Japanese conglomerate Hitachi) and you start to see why 3PAR looks so good to them.
Everyone in the know on this expects this to continue for a bit, since both companies have a ton of cash on hand (fundamentally sound companies hate this), with Dell having about $12 billion and HP around $15 billion. HP’s current offer is currently valuated at roughly $2 billion dollars but with the available cash on hand that these two companies both have I think we may see a final price somewhere in the neighborhood of $3.5-$4.0 billion dollars. Let me be clear, 3PAR is currently nowhere near worth the $2 billion that each seems willing to pay and most expect it to take 3-5 years for this acquisition to start adding positive capital to either company’s balance sheet. This just isn’t fundamental business, but I suppose it all comes down to how much money would you be willing to put down up front for the chance to be a major player in a $60 billion/year business in 3-5 years. I don’t know but it’s a hell of a risk if you ask me.
From the looks of it, this battle is just heating up, but when it’s all said and done the only real winners will be 3PAR’s shareholders.