3PAR Battle Ends, but Drama Remains

The outcome of the tussle no longer is in doubt, but the dust has yet to settle on HP’s pending acquisition of 3PAR for $33 per share, or about $2.07 billion. In a bidding war that said as much about the fear of the buy-side principals as it did about the scarcity of high-end storage alternatives, Dell finally folded its hand and backed away from the table, unwilling to match HP’s latest escalation.

Said Dave Johnson, Dell’s senior vice president for corporate strategy: “We took a measured approach throughout the process and have decided to end these discussions.”

Measured approach? Well, I suppose it’s all relative, depending on circumstance and context, but “measured” isn’t a word that springs readily to mind to describe the 3PAR transaction.

Discombobulating Value

As Bloomberg notes, HP’s final offer values 3PAR at 325 times the company’s earnings before interest, taxes, depreciation, and amortization during the past year. In 21 computer-services deals in the past five years, acquirers paid a median 16 times trailing Ebitda, according to Bloomberg data. How’s that for context and perspective? Even the price-to-revenue multiple is discombobulating in an economic climate that is described variously as muted, torpid, and uncertain.

Yes, I understand that virtualization is remaking and reshaping the data center — wherever it might reside — and that significant scarcity value rightly adheres to 3PAR and its technology. But there are limits, and I think they were left well behind in this saga.

In the end, Dell made a belatedly prudent decision in allowing HP to triumph. Dell will receive a consolation prize in the form of a $72-million termination fee. It’s better than nothing, but it’s not the outcome Dell had in mind when it initiated this process with its original $18-a-share offer for 3PAR on August 16.

Back to the Drawing Board

Consequently, it’s back to the high-end-storage drawing board for Dell. We might consider placing bets on which of the remaining players in an admittedly small pool Dell will attempt to catch, but the implications of today’s events extend well beyond Dell and HP.

The relationship between Dell and EMC already was strained before the 3PAR episode, and you can be sure that the distrust and paranoia will not recede in its aftermath. EMC — along with VMware, of which it is the majority owner — could be driven further into the warm, suffocating embrace of Cisco Systems, which is what Dell feared all along. That’s the funny thing about self-fulfilling prophecies, isn’t it?

Theater Remains Open

And there’s Hitachi Data Systems. It’s been left with plenty to ponder, most of it dark, as HP prepares to punt it to the curb at the upper reaches of its storage portfolio. How will Hitachi respond, and how soon? The company typically doesn’t move at the speed of light, but this week’s events might lend a spring to its step.

We also ought to consider IBM and NetApp. They’re not purely disinterested observers. They will be thinking about what this means for them, not just as it applies to storage but as it applies to playing a part in delivering virtualized solutions throughout the data center. Partnerships, as well as M&A, become prominent considerations.

So, the curtain might be coming down on the drama involving HP, Dell, and 3PAR, but the opera house isn’t closed yet. It’ll be interesting to see what new names appear on the marquee.