Dell to Retain Compellents Management

By Fahmida Y. Rashid  |  Posted 2010-12-13

Dell Buys Compellent for $960 Million to Expand Storage Lineup

Foiled in an earlier attempted to expand its virtualized storage product line, Dell announced Dec. 13 that it had acquired Compellent to broaden its enterprise-class storage portfolio and expand its data-center capabilities. 

Compellent specializes in virtualized storage products with automated data-management features, including tiering and thin provisioning. Its main product, Compellent Storage Center SAN, is a combination of data-storage hardware and storage management software. With the Compellent merger, Dell can focus on data management, thin provisioning, and storage for cloud-computing environments, said Brad Anderson, senior vice-president of the enterprise product group at Dell. 

With the purchase price finalized at $27.75 a share, the all-cash deal is valued at about $960 million. The buyout will actually cost $820 million after Compellent's current cash holdings are included in the deal. 

It's no secret that Dell wants to expand its data-center business to offer customers a combination of servers, networking and storage, instead of relying on the commoditized PC business. In August 2010, Dell sought to acquire 3Par, another maker of virtualized data-storage products, but lost a prolonged bidding war to HP

The company has several storage offerings, which have grown "organically" through enterprise investments and "inorganically," such as by acquiring EqualLogic, said Anderson. Dell is "committed to the storage industry," he said. 

While long expected, the deal raised a lot of questions about Dell's existing partnership with storage leader EMC. Dell resells EMC's storage lineup, including the mid-range Clariion line and high-end Symmetrix systems. First signed in 2001, the Dell-EMC partnership is good through 2013. 

On a call with reporters, Anderson downplayed the potential impact, pointing out that there are "over 24,000 customers" using EMC products, and that Dell will continue to do the "right thing for customers." Anderson said Dell and EMC had been in discussions over the "past two days" and they remain "passionately committed to customers."  

According to Anderson, Dell will "continue to sell EMC" for customers who are interested in that lineup. Dell's products are open, capable and affordable, and "one element of being open is choice," Anderson said.  

When pressed further about whether the sales team will be talking about the EMC lineup at the expense of Compellent products, Anderson reiterated that Dell will do "the right thing for customers" followed by the "the right thing for shareholders." 

The general perception is that Dell's relationship with EMC is not on strong footing, especially with Dell shopping for its own storage business. When Dell bid on 3Par in August, the partnership was "put at risk," and this Compellent merger "may be a defensive move" in light of a "souring relationship" with EMC, said Jeff Ready, CEO of Scale Computing. 

"The EMC relationship may become even more strained," wrote Jeffrey Fidacaro, an analyst with Susquehanna International Group, in a research note. Compellent's SAN storage solution "competes directly with EMC's Clariion, particularly in the midrange," he wrote. 

The latest merger in the data-storage industry came on the heels of Dell's and Compellent's joint announcement last week that they were in the midst of negotiations, at $27.50 a share.  

Dell to Retain Compellents Management


Anderson also said there "was no significance" to the final purchase price being slightly higher per share than was the previously announced price. He also declined to comment on why the price was even disclosed if it wasn't finalized. 

Dell is not the only one looking to expand storage capabilities through acquisitions, but it may have the cheapest deal. EMC recently paid $2.25 billion for Isilon Systems and IBM acquired Netezza for $1.7 billion. Dell originally went after 3Par and lost the resulting bidding war to Hewlett-Packard, who offered $2.35 billion.  

Fidacaro gave "credit" to Dell for being "disciplined" on the purchase price for Compellent. 

Unlike what happened with 3Par, a second bidder was unlikely to emerge in this scenario, according to Fidacaro. Dell has been shopping around for companies to buy and Compellent had been mentioned several times as a potential target. Further, there are not a lot of buyers out there, as EMC, IBM and HP already have made their moves, and there aren't many independent storage vendors left for sale. 

Speculation about the potential acquisition had driven up Compellent's share price since August, but Dell's initial and final offers were nearly 18 percent lower than Compellent's stock price last week. Despite the below-market offer, Fidacaro said it was a "relatively reasonable" price, and lower than the $29 to $34 range expected in a "more competitive deal."  

Dell's EqualLogic line, acquired for $1.4 billion in 2008, is similar to Compellent's offering, just based on a different storage networking standard. Anderson downplayed the similarities, saying there was not a "tremendous overlap" between the two lines. 

The deal is expected to close in the "next two months," said Anderson. Dell will integrate Compellent into its storage lineup, which already includes PowerVault and EqualLogic. The "expectation is not to change the brand," said Anderson, but to keep the Storage Center name. 

Phil Soran, president and CEO of Compellent, will be staying on as a vice president at Dell. He will be "helping to solve data-storage problems," he said. Anderson said Dell will be retaining the entire leadership team. 

Dell also will be making offers to all 490 employees at Compellent to stay on in their roles, said Anderson. The PC maker further plans to keep Compellent's existing operations in Eden Prairie, Minn., the company said.  

"Bottom line, this is a growth story," Soran said. 

Compellent has a strong channel program and brings quite a few partners to deal, said Soran. As part of the arrangement, Dell has signed a reseller agreement that allows Dell to immediately start distributing Compellent products and allows Dell's sales team and customers to learn about Compellent before the deal closes, Dell said. 

However, since the companies will continue to operate independently until the deal is done, Dell has not reached out to channel partners yet, according to Soran and Anderson.

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