Sweet and High: The Bidding War for 3PAR

All signs suggest that Dell will fire a return volley in the bidding war between it and HP for ownership of 3PAR. Recent evidence can be found in a Bloomberg article that cites a person “familiar with the matter” who says Dell is preparing a sweetened offer for the apparently sough-after vendor of high-end storage.
A  sweetened offer? If the offers for 3PAR get any sweeter, investment bankers involved in the deal will suffer from diabetic shock.

$2 Billion?

Meanwhile, the market sends its own compelling signals that Dell isn’t done with 3PAR. On a down day, 3PAR shares are up, trading at a level that assigns the company a current market capitalization (as of 12:53 pm EDT) of $1.68 billion. HP’s proposal for 3PAR values the company at about $1.6 billion, so market sentiment suggests the tug of war will continue.

Could Dell go as high as $2 billion in its pursuit of 3PAR? It seems like madness, but that’s what some market watchers and Dell aficionados believe will happen.

Let’s say Dell does decide to trump HP’s counteroffer. What will HP do? Opinion on that question is split, with some saying HP will go even higher and others suggesting that HP would back away from the table, content to see Dell overpay spectacularly to win the duel.

Sincerity or Duplicity?

The thinking from one camp, in fact, is that HP is angling for that very outcome. If, after putting 3PAR on its corporate mantelpiece, Dell were to want to add, let’s say, network infrastructure to its data-center solution stack, its options would be restricted by what it spent to acquire and integrate 3PAR. Indeed, after closing a $2-billion deal for 3PAR,  Dell would be on notice to show investors that the gambit was more than a vanity purchase.

But I doubt that HP is playing a maniacally devious game of M&A brinkmanship. If one considers what HP spent to acquire 3Com and Palm, it’s a company that isn’t afraid of paying top dollar to obtain assets it wants to buy. My thinking is that HP is in the race for 3PAR because it wants to own the company, not because it’s trying to drain Dell’s piggy bank.

That said, would HP go above $2 billion to claim the prize from Dell? Don’t ask me. I thought we’d hit nosebleed altitude on this transaction long before now.

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