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As the bidding for storage company 3PAR ratchets higher, so does one question-why are Dell and HP willing to spend this much money for one fairly small company?
My first thought was that maybe the two companies just hate each other. I was having visions of a face-off under the hot Texas sun as the companies finger their Colt single-action Army revolvers, each waiting for the other to draw. Unfortunately, as much fun as that might be to imagine, this fight is being waged with cash-piles of it.
What’s actually going to happen is that HP is going to outbid Dell and buy 3PAR. My guess is that the final offer that does the trick will be about $2.5 billion. Yes, that’s with a “B.” That effectively makes the stock price a couple hundred times earnings, and that’s a pretty expensive buy. So what is it about 3PAR that makes it worth so much that two huge companies are trying to outspend each other to get it?
This could be one of those rhetorical questions that go unanswered, except perhaps in some existential way, but fortunately, this is one of those situations in which philosophy can give way to reality. To accomplish this, I called the real expert in such things, eWEEK’s own maven in all things storage, Chris Preimesberger. Chris, it turns out, had just been asking Praveen Asthana, Dell’s vice president for Enterprise Solutions and Strategy, exactly the same question.
Dell, it turns out, wants to move beyond just being a hardware company into becoming a “solutions company.” This is pretty important for Dell, if only because its solutions so far haven’t really included any real high-end options in terms of storage. Buying 3PAR would give it that. By having a high-end storage solution, Dell could better serve really large customers. But why 3PAR? Dell, it seems, believes that the number of companies with the technology they need has dwindled to one. Every other potential company has already been bought by somebody else.
HP, meanwhile, is in a different situation. HP already has a high-end provider in the form of Hitachi, but if you know Hitachi, then you know that this highly conservative company is slow to bring new technologies to market, it’s slow to adapt, or as Chris calls it, it’s really old school.
Giant HP Should Have the Winning Edge in 3PAR Bidding
Unfortunately for Hitachi, the storage market is not the place for being old school. Storage technology is changing to the point that the whole market has become highly dynamic. Failure to change is simply failure. Hitachi simply doesn’t cut the mustard, to put an old school description on it.
And, of course, to make matters worse, Hitachi’s products are very expensive when compared with other solutions with similar capabilities. HP, a company not known for either a failure to adapt or for being willing to be more expensive than necessary, probably would prefer not to be saddled with yesterday’s technology or yesterday’s business model. Plus, HP could really use 3PAR’s Autonomic Tiering, which handles the problem of tiered storage more effectively than its competition.
At this point, it’s not clear how this will all shake out. 3PAR has signed a letter of agreement to sell itself to Dell, but that was before HP raised the stakes. While the board of directors could theoretically sell to Dell on that basis, it’s a solid bet that they’d be hit with the mother of all shareholder lawsuits. Dell knows this, of course, and has raised its bid to equal HP’s. So the next move is up to HP.
The decisive factor is that HP has a nearly bottomless pit of cash, which is something that Dell doesn’t have. If HP wants 3PAR badly enough, it can just keep raising the price until Dell folds. The biggest question is whether HP wants 3PAR badly enough to keep it out of Dell’s hands. Perhaps it does, or perhaps it just wants to raise the price so high that Dell spends all of its cash on 3PAR and has nothing left for other acquisitions.
While it’s kind of fun to think of an old-fashioned Texas shoot-out in today’s digital age, the reality is that both companies have stockholders who demand profits. HP, because of its size and cash-rich position, can probably get away with spending more, but that doesn’t mean it necessarily will. Dell, on the other hand, is more constrained. But that company really needs 3PAR, and may be willing to go to extraordinary lengths to get it.
We may not know how this shakes out for a while, since companies tend to take their time when the cost gets this high. But if I had to bet, I’d pick HP. Maybe Dell could sign on with Hitachi as a sort of consolation prize.