Dell loses 3Par bidding war to HP

Dell on Thursday said it would not increase its most recent proposal to acquire virtualized storage vendor 3Par, paving the path for rival Hewlett-Packard to acquire the company.

In an escalating bidding war, HP on Thursday raised its offer for 3Par to $33 per share, or roughly $2.4 billion, from its previous bid of $30 per share. The move topped Dell's latest offer of $32 per share, according to 3Par.

HP's bid constituted a “superior offer,” and Dell's final offer to acquire 3Par was not accepted by 3Par's board of directors, Dell said in a statement.

“We took a measured approach throughout the process and have decided to end these discussions,” said Dave Johnson, senior vice president of corporate strategy at Dell. Dell is entitled to receive a $72 million break-up fee from 3Par upon the termination of its merger agreement.

Dell initially agreed to buy 3Par on Aug. 16 for $1.15 billion, but HP on Aug. 23 submitted a bid to buy 3Par for $1.6 billion. The bidding process for the company escalated, and on Thursday, the board of directors at 3Par considered HP's revised $33-per-share bid as being a “superior proposal” to Dell's $32-per-share proposal.

3Par declined comment. An HP spokesperson declined comment.

3Par makes scalable storage platforms with thin provisioning, under which allocation of storage depends on application needs. 3Par's technology differs from “fat provisioning,” under which excess storage is allocated to an application to meet future needs.

In 3Par, HP will get a storage vendor that competes with high-end storage offerings from EMC, Hitachi Data Systems and IBM, said Charles King, principal analyst at Pund-IT.

HP already offers high-end storage products, but mostly through a relationship with Hitachi Data Systems. 3Par will give HP a workable alternative to those offerings, King said.

“I think the real thing that HP was looking for here was a greater deal of autonomy for its storage products,” King said.

With 3Par, HP will gain a competitive product that it owns in the top-tier storage space, rather than relying on Hitachi partner technology or HP's aging EVA (Enterprise Virtual Array) technology, said Andrew Reichman, senior analyst at Forrester Research.

“They need to focus on retaining customers and key staff, and designing their storage portfolio for the next decade, determining where 3Par fits and how they will proceed in the market,” Reichman said.

The high-end storage market can be lucrative as the margins are high, but the sales are mostly to enterprises with high-end computing environments and storage needs. HP is betting that its opportunities in cloud computing could increase through storage products that 3Par offers. HP has a sizeable data-center business and may have customers interested in 3Par's product, Pund-IT's King said.

The desire to acquire 3Par technology was obvious considering how competitive the market has become, but HP's win isn't necessarily Dell's loss, analysts said. Dell has a good relationship with EMC for high-end storage offerings and could continue to build that relationship. EMC offers Symmetrix enterprise storage arrays.

Dell could also evaluate other acquisition candidates, but that is no easy task given that there is no clearly proven option, Reichman said.

Companies such as Compellent or Xiotech are likely the best options at this point, but neither compete directly in the top-tier enterprise storage market today, Reichman said. Dell could also try to acquire EMC or NetApp, either of which could be a tremendously expensive and complicated deal. Or Dell could decide not to expand into the enterprise storage market, and to some extent lose credibility as an enterprise player, Reichman said.

“This is clearly what HP is hoping for by denying Dell 3Par,” Reichman said.

Dell spokesman David Frink said that the company already offers a full range of low- to high-end storage products that address all markets. The company has also been adding intellectual property to improve its storage offerings. The company in July bought Ocarina, which makes hardware and software to reduce the amount of storage capacity enterprises need.

Dell will also continue to look at acquisitions in specific areas through which the company can improve its product offerings, Frink said.