HP bids $2.4bn for 3PAR HP has raised its bid for 3PAR to $33 a share, around $2.4bn, beating a revised Dell offer made earlier today. Dell had come back with $32/share bid, beating for HP's bid last Friday (27 August)of $30/share, and increased its bid termination fee to $92m. The 3PAR board has deemed the revised HP bid a superior proposal, again …
This has cost more than ideal but I still think this is good business for HP. With increased resources behind it, the 3PAR box will sell in vastly increased numbers. The average deal size for 3PAR is significant as they are very successful in hosting companies, etc and the technology will also be a very good fit for HP's own cloud. And the numbers we are talking here are still small in the overall scheme of things. Now HP will have a genuine HP-manufactured high end solution and there is a hell of a lot more margin in that than reselling someone else's enterprise arrays. 3PAR shareholders are delighted, HP should be optimistic but I think this is a pretty big blow for Dell who are scrabbling around for a credible alternative now. Sure there are a few options but none with the market acceptance of 3PAR so will take longer to see a return.
I have to admit that this area of business if far outside my expertise. We are dealing with a world to which I was not born, so the answer to my question may seem obvious. Still, I would appreciate it if someone could clue me in.
Why would Dell continue to drive up the price? At 2.4 BILLION, can’t Dell simply let HP take the (now horrifically inflated) 3PAR and walk away a winner? In my mind, they should be able to take 1Billion and essentially BUY all the staff at 3PAR, regardless of if HP gets the company or not. They could then take the remaining 1.4 billion and give those staff their own skunkworks and a nearly unlimited amount of resources. As a bonus, because they are the folk behind the patents HP just bought, they would know how to engineer the stuff they are building for Dell in such a way as to not infringe on HP’s new and shiny patents.
Two years later Dell would have its own in-house 3PAR, and HP would have a 2.4 billion dollar shell, with a few patents and no talent to back it up.
What am I missing here?
It wasn't a case of Dell driving up the price for the sake of it. Dell wanted it and were prepared to pay almost as much as HP for it. You rightly ask why. In my opinion, 3PAR is the only genuinely credible storage provider outside of the current main players. It has a strong product line, a great reputation, very good technology, and some significant customers on its' books. What is lacks is economies of scale, market penetration and 'feet on the street' selling it. Both HP and Dell realised that they can bring those elements to the party. Consider HP as the supposed victors. They have the worlds biggest supply chain so even if they just continued selling the 3PAR solution separately, could manufacture it cheaper than currently and will likely sell a lot more units. So the current revenue position for 3PAR is almost irrelevant. Consider that 3PAR has been growing 67% yoy compared to 1% for EVA then you can see that there is a gap in the HP portfolio that this fits. I actually think EVA is a very good product but it just doesn't scale enough so there is currently a bit of a gaping hole between EVA and XP. A lot of customers want a highly scalable, resilient mid-range solution rather than having to look at the enterprise XP for anything over a certain capacity. Plus 3PAR is due for a refresh anyway so you can be sure that Dell and HP both have a view of roadmaps and have seen something they liked.
Dell could try and buy the brains behind 3PAR or buy a smaller company such as Compellent (up 18% yesterday) or Xiotech but it will take a couple of years via either route which is time Dell don't really have. In 2 years, the market will have moved on beyond recognition anyway so it would be meaningless for Dell to target catching up in that timeframe as they would immediately be behind. Buying 3PAR is a short term and a long term fix, and is probably the only acquisition that can offer that.
Trevor, even if Dell did take all the 3PAR employees then any "3PAR' like alternative they created would almost certainly infringe HP's newly acquired patents. If you use the same brains to create a solution to the same problem, they're going to come up with a remarkably similar method (or at least similar in massive chunks of it). Unless you're going to wipe their memory somehow (I vote for Friday night drinks every day).
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