Dell (DELL) is preparing to top Hewlett-Packard's (HPQ) bid for 3Par (PAR), a storage and virtualization software firm, according to Bloomberg. HP trumped a Dell bid with a $24-a-share offer of its own, which is worth about $1.6 billion. Dell's original bid was $1.14 billion. The HP offer pushed 3Par shares to $26.09 on Monday, a sign that investors are anticipating a bidding war.
The dynamics of a potential battle between Dell and HP are important. Dell was once the No.1 PC company in the U.S. It has failed to diversify much beyond its PC and server roots. In the meantime, HP has added to its PC portfolio by purchasing Compaq in 2001 for $25 billion. HP already had America's largest PC printer operation. Under CEO Mark Hurd, HP became the largest tech company in the U.S. as it further diversified into software and IT services. This was capped by the 2008 buyout of IT consulting firm EDS in 2008. The price tag for that deal was $13.9 billion.
Dell needs M&A transactions to add to its core business. 3Par would help the company do that. HP's counter may be as strategic as it is tactical. 3Par would be a nice addition to its portfolio of companies, too, but its offer may be more a move to prevent Dell from growing in this sector.
3Par's stock price is getting expensive -- perhaps too expensive. In the last quarter, its total revenue was only $53 million and it lost just over $1 million. Before the Dell and HP bids, it traded only a bit over $10, which means that the market was unwilling to put a premium value on its assets and revenue.
Whichever company buys 3Par, it may need to "overpay" -- at least based on 3Par's business as it operates today.
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