Dell says 3Par accepts its increased $1.52B buyout offer, which tops rival HP’s bid

Thursday, August 26, 2010

Dell says 3Par accepts its hiked $1.52B buyout bid

SEATTLE — Dell Inc. said Thursday that data-storage maker 3Par Inc. has accepted its raised buyout bid of $1.52 billion, after the computer maker topped an offer from rival Hewlett-Packard Co.

HP and Dell, among the world’s largest personal computer makers, are looking at 3Par as a way to build up their “cloud computing” businesses, which involve delivering software, data storage and other services to customers over the Internet. The companies want 3Par to help keep data-storage costs down because the company has technology that doles out storage space on the fly.

Dell’s new offer is $24.30 a share in cash, up from its $18-per-share offer, or about $1.13 billion, on Aug. 16. Rival HP had countered with an offer of about $1.5 billion on Monday, or about $24 per share.

The back-and-forth bidding for such an obscure company underscores how serious Dell and HP are about finding more profitable businesses than selling computers. The companies that made personal computers affordable and ubiquitous must now draw new buyers by offering more sophisticated PCs with ever-lower prices. The cost of parts, meanwhile, has increased this year, putting even more of a squeeze on profits.

Cloud computing holds the promise of richer profits for technology providers because many companies aren’t buying their own computer servers for certain tasks anymore. Instead, they’re paying to have software they would have stored on those machines delivered to them over the Internet.

Dell, HP and others are trying to take advantage of the trend by offering those kinds of cloud-computing services directly on a subscription basis, along with the equipment and software for customers to build their own cloud systems.

One of the reasons cloud computing is attractive is that such systems are designed to be shared by multiple customers, which spreads out the cost of operating expensive equipment. The servers and storage computers need to ramp up or scale down quickly based on demand in order to give all the customers the same high level of service; 3Par’s storage machines are made for that kind of system.

The struggle for 3Par may continue. The agreement between Dell and 3Par gives Dell the chance to match any other offers that 3Par’s board might be inclined to accept. And both Dell and HP can afford to keep bidding for 3Par, which is based in Fremont, Calif.

Even though Dell is half HP’s size — Dell had $53 billion in revenue last fiscal year, compared with $115 billion for HP — Dell has almost as much cash as HP. Dell reported $12.4 billion in cash and short-term investments at the end of last quarter. HP had $14.7 billion.

“We believe another counteroffer is possible,” UBS analyst Maynard Um wrote in a note to clients Thursday.

In morning trading Thursday, shares in 3Par fell 60 cents, or 2.2 percent, to $26.16 — which is still above Dell’s latest offer price, suggesting investors expect a higher bid from HP. Dell shares rose 14 cents, or 1.2 percent, to $11.93, and HP shares gained 34 cents, or less than 1 percent, to $38.58.

Dell and 3Par did their agreement to make it slightly more painful for 3Par to accept another offer, in the form of a termination fee of $72 million it would pay to Dell. The fee before was $53.5 million.

HP, which is based in Palo Alto, Calif., declined comment.

Shaw Wu, an analyst for Kaufman Bros., said in an interview that the only reason HP would come back with another bid would be as a defensive play to keep Dell out of the game.

Wu said HP’s existing data storage line already includes similar technology. Dell, on the other hand, would see better profits from selling its own storage systems after a 3Par acquisition than it does today as a reseller for EMC Corp., a top storage provider.

Dell, which is based in Round Rock, Texas, said it expects the deal to add to earnings by fiscal 2012.

Shareholders of 3Par have until Sept. 20 to accept Dell’s offer. The deal is expected to close before the end of the year, subject to government approvals and other closing conditions.

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