HP Explains Motives Behind $1.6 Billion Offer for 3PAR

By Chris Preimesberger  |  Posted 2010-08-24 Print this article Print

Executive Vice President Dave Donatelli contends that 3PAR "is a company that has good technology but does not have the ability to bring it to market," and that HP can bring its products to large customers globally.

Hewlett-Packard wants to buy scale-out enterprise storage maker 3PAR to provide more options for large enterprise and midrange customers, and the new products won't overlap with the company's current offerings, Executive Vice President Dave Donatelli told a conference call audience Aug. 23.

Hewlett-Packard, despite already being loaded with one of the largest storage product catalogs in the world, announced earlier in the day that it would enter into a bidding war with Dell by offering $24 per share for 3PAR -- which amounts to enterprise value of $1.6 billion.

Dell on Aug. 16 said it would offer $1.15 billion, or $18 per share, for Fremont, Calif.-based 3PAR.

Donatelli, who joined HP in May 2009 following a long tenure at EMC, said that "we believe we have a good opportunity to grow revenue and grow at a very nice margin, which drives our business case. What I would add to it is that we have built up a great track record of doing transactions of this nature."

Donatelli pointed out that since its April 2010 acquisition of networker 3Com for $2.7 billion, HP already has more than 300 proof-of-concept networking projects under way.

"I think this is a great analogy for this transaction," Donatelli said. "What a lot of these smaller companies with good technologies have a problem with is that customers want to buy from fewer, larger companies that they trust, and that have global support for them.

"Looking at 3Com for a moment, very quickly after the acquisition, we were able to get them into huge accounts globally. That's by taking our scale and marrying that with their technology. From my perspective, a 3PAR transaction is very similar. This is a company that has good technology but does not have the ability to bring it to market."

HP can bring 3PAR's wares to market directly, through channel partners, or through the HP services group, Donatelli said.

Is 3PAR being overvalued?

Despite agreement from most analysts that its products are sound, could 3PAR be overvalued? The company's stock sold for under $10 per share for a full year before talk of the acquisition drove it up substantially in the last few days. The stock closed Aug. 23 at $26.09, up $8 -- or a whopping 44 percent -- on the day.

Some analysts on the conference call were skeptical of HP's offer, which is roughly equal to six times 3PAR's annual sales.

"We've been working on this deal for some time, it's been part of an active M&A process for us," Donatelli said, specifically avoiding any reference to the history of 3PAR's stock price. "This is a very methodical approach to the marketplace in growing our offerings."

3PAR originally made its reputation by delivering a scalable, dependable thin-provisioning feature. It is a hot storage property because its clustered architecture is tailor-made for cloud systems that deliver software as a service, and cloud storage systems are in a huge buying trend at this time.

HP already has a scale-out acquisition in iSCSI storage specialist Lefthand Networks, which it bought in October 2008 for $360 million. The Lefthand acquisition mirrored the 2007 pickup of iSCSI storage maker EqualLogic by Dell, which now appears to be challenging HP for taking over 3PAR.

Donatelli said, 3PAR and Lefthand offer different takes on large-scale enterprise storage, far apart enough to touch different sectors of the overall market.

HP made the original offer to buy 3PAR a few weeks ago, Donatelli revealed. The Aug. 23 offer is the second one -- sandwiched around Dell's Aug. 16 bid -- that the Palo Alto, Calif.-based IT company has put on the table.

Chris Preimesberger Chris Preimesberger was named Editor-in-Chief of Features & Analysis at eWEEK in November 2011. Previously he served eWEEK as Senior Writer, covering a range of IT sectors that include data center systems, cloud computing, storage, virtualization, green IT, e-discovery and IT governance. His blog, Storage Station, is considered a go-to information source. Chris won a national Folio Award for magazine writing in November 2011 for a cover story on Salesforce.com and CEO-founder Marc Benioff, and he has served as a judge for the SIIA Codie Awards since 2005. In previous IT journalism, Chris was a founding editor of both IT Manager's Journal and DevX.com and was managing editor of Software Development magazine. His diverse resume also includes: sportswriter for the Los Angeles Daily News, covering NCAA and NBA basketball, television critic for the Palo Alto Times Tribune, and Sports Information Director at Stanford University. He has served as a correspondent for The Associated Press, covering Stanford and NCAA tournament basketball, since 1983. He has covered a number of major events, including the 1984 Democratic National Convention, a Presidential press conference at the White House in 1993, the Emmy Awards (three times), two Rose Bowls, the Fiesta Bowl, several NCAA men's and women's basketball tournaments, a Formula One Grand Prix auto race, a heavyweight boxing championship bout (Ali vs. Spinks, 1978), and the 1985 Super Bowl. A 1975 graduate of Pepperdine University in Malibu, Calif., Chris has won more than a dozen regional and national awards for his work. He and his wife, Rebecca, have four children and reside in Redwood City, Calif.Follow on Twitter: editingwhiz

Submit a Comment

Loading Comments...
Manage your Newsletters: Login   Register My Newsletters

Rocket Fuel