Hewlett-Packard Co. and Dell Inc. may have good reason to bid high for 3Par Inc.: The runners-up are too expensive or lack the products a new owner would need to compete with the top data-storage providers, analysts said.
Dell and HP are in a bidding war for 3Par, which helps companies cope with a surge in digital information. HP has said it would pay $24 a share, or $1.6 billion, valuing 3Par at more than eight times its revenue and topping Dell’s earlier bid. Dell may counterbid, a person familiar with the matter has said.
Alternatives for the loser include Compellent Technologies Inc., which gained 8 percent this week on takeover speculation, or closely held Xiotech Corp. Yet both sell less robust systems that may do little to help HP or Dell vie with leaders such as EMC Corp., International Business Machines Corp. and Hitachi Ltd., said Aaron Rakers, an analyst at Stifel Nicolaus & Co. Another would-be target, NetApp Inc., may prove too costly.
“There’s a scarcity of what 3Par brings to the table,” said Rakers, who is based in St. Louis and has a “hold” rating on 3Par. “They’re the only guy out there who will give you that presence in the high-end storage market.”
Computer makers HP and Dell want to expand in storage as they look for more profitable businesses that can lessen their dependence on low-margin laptops and desktops. Three companies have approached 3Par about an acquisition, the company said on Aug. 23, without identifying suitors besides Dell.
Oracle Corp. expanded in storage with its purchase of Sun Microsystems Inc. this year and has said it seeks other storage deals. HP spokeswoman Gina Tyler and Oracle spokeswoman Kim Pineda declined to comment. Dell spokesman David Frink didn’t respond to a request for comment.
HP is willing to pay a higher premium than acquirers in comparable transactions. In 24 acquisitions of U.S. computer hardware, storage, printing and services companies during the past five years, buyers paid a median of 1.26 times sales, according to data compiled by Bloomberg.
HP also is offering 230 times 3Par’s earnings before interest, taxes, depreciation and amortization over the past year. In 20 deals in the past five years, acquirers paid a median 15 times trailing Ebitda, according to the data.
3Par, based in Fremont, California, dropped 28 cents, or 1 percent, to $26.76 at 4 p.m. in New York Stock Exchange trading. The stock surged 45 percent on Aug. 23, after HP’s bid was announced. 3Par closed at $9.65 on Aug. 13, the last trading day before Dell’s agreement was made public.
By specializing in disk storage systems that help companies more efficiently house large amounts of data, 3Par offers products rivals can’t replicate, said Rick Villars, an analyst at IDC, based in Framingham, Massachusetts.
It “designed a platform to compete with EMC, IBM and Hitachi, and there aren’t really any startups left who focus on that space,” Villars said.
Clinching the deal would help Dell sell large storage systems for key business applications and compete more effectively in the market for so-called cloud computing, which delivers software and computing services over the Internet, Villars said. HP, which now resells Hitachi storage devices, would gain a more direct relationship with customers, he said.
Technology sold by Compellent, based in Eden Prairie, Minnesota, can route data to different types of drives, depending on how quickly the customer needs to retrieve it. Compellent slipped 3 cents to $15.04, paring a 12 percent jump on Aug. 23.
“The storage market will continue to consolidate as it always has,” Compellent spokesman Liem Nguyen said in an e- mailed statement. “Compellent has the potential to become the next billion dollar storage company.”
Xiotech, also based in Eden Prairie, Minnesota, sells storage “blades” that pack together high-capacity disk drives and help customers make better use of storage capacity.
Dell and HP regularly evaluate storage acquisition targets, Xiotech Chief Marketing Officer Brian Reagan said.
“I would be shocked if they’re not constantly scanning the market,” he said.
Xiotech was spun out of Seagate Technology in 2002 and acquired storage technology from the company in 2007. It has almost $100 million in sales and is growing fast enough to become a public company, possibly next year, Reagan said.
NetApp, based in Sunnyvale, California, makes devices that help companies store and share files, and its $14 billion market value may put it beyond the reach of HP, which has $14.7 billion in cash, or Dell, with its $11.7 billion cash hoard. NetApp spokeswoman Jodi Baumann didn’t respond to a request for comment.
In its Aug. 23 filing, 3Par said it rejected an offer from an unidentified suitor in July. Dell had agreed to purchase stock from some of 3Par’s biggest investors, together owning about a third of shares, according to a regulatory filing with the Securities and Exchange Commission on Aug. 20.
While HP has about twice the sales of Dell and is more than three times as profitable, it’s coping with the loss of its chief executive officer. Mark Hurd exited on Aug. 6, following a probe that found he filed inaccurate expense reports to conceal a personal relationship with a marketing contractor.
Dell, meanwhile, is trying to rebound from shrinking market share in PCs and tightening profit margins. This month, more than 25 percent of shareholders withheld support for CEO Michael Dell as a director.