HP to Buy 3Par for $2.35 Billion as Dell Walks Away

3Par Determines Revised HP Proposal Is Superior
An employee works on 3Par Inc. InServ T-class data storage servers at the company's headquarters in Fremont, California. Photographer: Tony Avelar/Bloomberg

Hewlett-Packard Co. agreed to buy 3Par Inc. for $2.35 billion, ending an 18-day bidding war with Dell Inc. for the maker of storage systems and stepping up its rivalry with EMC Corp.

The $33-a-share cash offer has been approved by the boards of both companies, HP and 3Par said today in a joint statement. Dell, whose last bid was for $32 a share, decided to end its discussions with 3Par, Dave Johnson, Dell senior vice president for corporate strategy, said today in a separate statement.

HP’s offer is more than three times the $9.65 closing price for 3Par stock on Aug. 13, before Dell’s initial bid was made public. It’s about 10 times 3Par’s revenue over the past four quarters. The premium reflects a growing urgency to use acquisitions to fuel growth and underscores the dearth of affordable runners-up in the storage market.

“It looked like HP was willing to bid for this asset at any price,” said Shaw Wu, an analyst at Kaufman Bros. in San Francisco who recommends buying HP shares and doesn’t own any himself. “It’s tough for Dell or anyone to compete with a determined bidder.”

The deal’s price excludes 3Par’s cash and near-term investments of about $104.3 million. Dell began the public bidding for 3Par at $18 a share on Aug. 16, going on to offer as much as $32. Dell was paid a $72 million termination fee, 3Par said today.

R&D Costs

3Par has struggled to turn a profit because of high research and development spending on chips and other hardware technology, said Wu at Kaufman Bros. In 3Par’s fiscal year, which ended in March, the company spent about 25 percent of sales on R&D.

HP might accelerate 3Par sales to about $1 billion within a year or two, easing the research and development burden on sales, Wu said.

“The bigger question is whether it can scale larger than that,” he said. “A billion dollars for HP isn’t a whole lot.”

Hewlett-Packard had almost $15 billion in cash and short-term investments at the end of July, according to the company’s financial statements.

Dell’s latest bid, which was made privately and disclosed by 3Par, included an increased termination fee of $92 million as well as a multiyear reseller agreement if 3Par accepts a different offer, 3Par said. The company’s board rejected the terms.

Highest Premium

HP’s deal for 3Par has resulted in the highest premium offered in a competitive situation among 19,063 completed and terminated U.S. deals of at least $50 million tracked by Bloomberg since 2001.

“They way, way, way overpaid,” said Kaushik Roy, an analyst at Wedbush Securities in San Francisco. “They need something to stop the bleeding,” he said, referring to HP’s market share in the computer-storage market. “Everything has a price.”

3Par gained 80 cents, or 2.5 percent, to $32.88 at 4 p.m. in New York Stock Exchange composite trading. HP rose 47 cents to $39.68. Dell advanced 24 cents to $12.36 on the Nasdaq Stock Market.

The $33-a-share price 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.

3Par Revenue

3Par offers hardware and software that make it easier and cheaper for companies to store information. HP is betting it can increase 3Par’s revenue by dispatching their larger sales teams to sell its gear, said Shannon Cross, an analyst at Cross Research in Livingston, New Jersey.

In addition to strengthening its storage products, HP wanted to show it can clinch the deal following the departure of its chief executive officer, said Aaron Rakers, an analyst at Stifel Nicolaus & Co. in St. Louis, who recommends buying HP and Dell shares.

Former HP CEO Mark Hurd left Aug. 6, after a probe found inaccurate expense reports filed by him or on his behalf had the effect of concealing a personal relationship with a marketing contractor.

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