Monday, August 23, 2010

Bidding War - HP to Counterbid $1.6 billion for 3PAR, 33% More Than Dell

Today, HP said it would pay $1.6 billion, or $24 a share, for 3PAR, which makes high-end storage systems and data management products that help reduce power and energy costs for companies storing information. The offer represents a 33% premium above the $1.15 billion bid that Dell made last Monday. HP said the acquisition of 3Par would accelerate its “converged infrastructure” strategy, which helps its customers organize their servers, data storage and networks on one platform. Dell on the other had has been late to the enterprise services, desparately overpaying for obvious acquisition targets to catch up with IBM and HP. In fact, back in April, I wrote a blog post: "Gold rush to services - Is it too many too late?" about stagnant hardware companies jockeying for leadership position in the enterprise services space.

Bidding wars in the high-technology sector are rare, but not uncommon in the storage space; Last year, EMC and NetApp went back and forth several times for storage software maker Data Domain, which EMC eventually acquired. Data Domain, like 3PAR, is represented by Qatalyst Partners, the boutique investment bank run by longtime industry insider Frank Quattrone, another great dealmaker I have been following over the years.

I believe HP was about to close 3PAR deal but distracted by the dismissal of Mark Hurd, HP's "Chief Dealmaker".  On August 10, I wrote a post on how Hurd's firing could hurt HP's M&A momentum and cited 3PAR as a clear target for the company. HP folks I know say that Mark Hurd had to sign off on each deal before a bid was put in and followed M&A pipeline closely.  Given Hurd's track record of big deals such as EDS, Palm and HP's product gap in the high-end storage segment, this counter bid did not come as a surprise. In fact, in my blog post of last Monday, I did mention Hewlett-Packard, EMC, Oracle and NetApp as likely rival-bidders in this deal. As of now 3PAR's stock was up about 45% in anticipation of an escalating bidding war between two deep pocketed high-tech titans:  HP has $15 billion and Dell has $13 billion in cash. It is like the July 4th fireworks - you buy the stock and watch the biding war.....

The following is the full text of the letter HP sent to the 3PAR board regarding its offer:

August 23, 2010

Mr. David Scott
President and Chief Executive Officer
3PAR, Inc.

4209 Technology Drive
Fremont, CA 94538

Dear David:

We are pleased to submit to you and your Board of Directors a proposal to acquire 3PAR, Inc., (“3PAR”) which is substantially superior to the Dell Inc. (“Dell”) transaction. We are very enthusiastic about the prospect of entering into a strategic transaction with 3PAR and believe that a business combination with HP will deliver significant benefits to your stockholders, customers, employees and partners.

We propose to increase our offer to acquire all of 3PAR outstanding common stock to $24.00 per share in cash. This offer represents a 33.3% premium to Dell’s offer price and is a “Superior Proposal” as defined in your merger agreement with Dell. HP’s proposal is not subject to any financing contingency. HP’s Board of Directors has approved this proposal, which is not subject to any additional internal approvals. If approved by your Board of Directors, we expect the transaction would close by the end of the calendar year.

In addition to the compelling value offered by our proposal, there are unparalleled strategic benefits to be gained by combining these two organizations. HP is uniquely positioned to capitalize on 3PAR’s next-generation storage technology by utilizing our global reach and superior routes to market to deliver 3PAR’s products to customers around the world. Together, we will accelerate our ability to offer unmatched levels of performance, efficiency and scalability to customers deploying cloud or scale-out environments, helping drive new growth for both companies.

As a Silicon Valley-based company, we share 3PAR’s passion for innovation. We have great respect for 3PAR’s management team and its employee base, and are excited about the prospect of working together going forward. Our long track record of acquiring companies and integrating them seamlessly into our organization gives us great confidence that this will be a successful combination.

We are including with this letter a draft merger agreement with the same terms as your announced transaction with Dell but which eliminates the termination fee.

We understand that you will first need to communicate this proposal and your Board’s determinations to Dell, but we are prepared to execute the merger agreement immediately following your termination of the Dell merger agreement. We also are prepared to commence a cash tender offer reflecting our higher price. Our tender offer would, of course, be conditioned upon your Board of Directors’ approval of a transaction with HP.

We look forward to making this opportunity a reality and consummating a mutually beneficial transaction.


Shane Robison
Executive Vice President and Chief Strategy and Technology Officer

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