Dell Makes $876M Offer to Buy Compellent to Expand Storage Business

Dell and Compellent are in "advanced discussions" about a merger that would give Dell the storage technology it needs to compete with EMC, HP and IBM.

Dell and Compellent Technologies are in "advanced discussions" about a potential merger, the companies confirmed on Dec 9.

Even though the negotiations are still ongoing, the announcement said Dell will acquire all outstanding Compellent stock at $27.50 per share. The all-cash deal would be valued at about $876 million. Compellent main product is the Compellent Storage Center SAN, which is a combination of data storage hardware and storage management software.

"There can be no assurances that an agreement will be reached or that a transaction will be consummated," the companies said in a joint statement. "Dell and Compellent do not intend to comment further until an agreement is reached or discussions are terminated," the statement said.

Announcing the price before finalizing the agreement raised a few eyebrows, especially since Compellent shares opened at $29.87. "We think this press release puts an end to some of the speculation and resets valuation expectations," Wells Fargo analyst Jason Maynard wrote in a research note.

There has been a lot of buzz about potential mergers in the data storage market, ever since the bidding war this summer over 3Par, where Hewlett-Packard won the prize, paying $33 per share, for a grand total of $2.35 billion. Since then, speculation has swirled that Dell may set sights on storage vendors like Compellent and CommVault Systems.

The acquisition rumors have been good for Complellent's stock price, pushing it steadily higher. Compellent shares opened at $29.87 Dec. 9, almost double its price of $15.41 on Sept. 2, the day HP announced its acquisition of 3Par.

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, or "being an OEM vendor of other people's products," said Jeff Ready, CEO of Scale Computing, to eWEEK. Dell currently has a storage partnership with EMC, which it "put at risk" by bidding on 3Par, he said.

It's unclear what a Dell-Compellent merger will have on the Dell-EMC partnership, but EMC said during its last earnings call that it wasn't sure whether the Dell relationship was "reparable" after Dell's 3Par bid in August, according to Ready.

The merger "may be a defensive move" by Dell in light of a "souring relationship" with EMC, he said.

Dell is "pretty serious about making themselves a player in the data storage space," and has been focusing on block storage, said Ready. The company acquired storage company Exanet and cloud integration platform Boomi for undisclosed amounts this year, and EqualLogic for $1.4 billion in 2008.

Dell expects to generate $30 billion in sales by the end of fiscal 2014, up from this year's $17 billion, the company said in June.

As Praveen Asthana, Dell's vice-president of enterprise solutions and strategy told eWEEK during the 3Par negotiations, Dell needs a high-end storage system that can handle massive amounts of data in its data center offierings. Compellent has technology that helps customers store, recover, and manage large amounts of data. Compellent's line of tiered storage products competes with EMC, who currently partners with Dell on storage products.

EMC recently acquired Isilon Systems, a unified storage vendor, for $2.25 billion.

The merger "would give Dell an asset that would be relatively easy to integrate and scale given that Compellent sells its products 100 percent through the channel," wrote Maynard.

Ready said it was interesting that Dell was pursuing block storage, when analysts are saying unified storage is where the long-term growth opportunities are. Block storage might be five times bigger in terms of revenue, but unified storage is growing about four times faster, he said.

However, he said the most important thing in the storage industry is to have scale-out architecture, and Compellent offers that, as does EqualLogic.

Maynard also didn't think there would be other bidders, since most of Dell's rivals, including EMC, HP, and IBM already have data center offerings.

However, the announced price is "not necessarily the final price," Ready said.