Stephen Foley: HP and Dell have lost their minds in this irrational bidding war
Saturday 28 August 2010
US Outlook: It is with some hesitation that I write about the battle for control of 3Par, a little California data storage company that is suddenly the hottest property in the tech industry. If Hewlett-Packard and Dell keep up the pace in their crazy bidding war, there could have been half a dozen more offers and counter-offers by the time you read this.
At the time of writing, after four bids in little more than 24 hours, a company that was worth barely $9 a share this time last week was going for $30 a share to Hewlett-Packard. The bidders have lost their minds.
What is 3Par? The 11-year-old company sells servers and software for data centres, and the interest from Dell and HP stems from the growing importance of "cloud computing". Of course, there is no such thing as the "cloud"; all we mean is that instead of data being stored on personal computers or in-house corporate machines, it instead is stored on third-party hardware housed in large data centres. The consequence of that is that there will be fewer, bigger hardware customers. And the consequence of that is that there will be fewer, bigger IT companies selling to them.
By adding 3Par into the mix of what it has to sell – combining hardware, software and services – Dell hopes to better serve those big, high-end buyers. HP, which already has a business in the same market as 3Par, just wants to stop it.
So there is the strategic rationale for an entirely irrational bidding war. At the level of HP's offer of yesterday morning, 3Par is being valued at $1.88bn, now almost 10 times last year's sales (on which it couldn't turn a profit). The winning company would have to raise 3Par's market share fivefold, from 5 per cent now, to justify that price, analysts think, and that is not an achievable goal.
Dell at least expects a halo effect for sales from having a full-service suite of products, but it could easily forgo its expansion into the high-end part of the market served by 3Par until it finds a more reasonably priced acquisition. That part of the market is not growing particularly strongly.
HP would already have high-end products as good as 3Par, if only it hadn't cut research and development to the bone under the ousted chief executive Mark Hurd, and it still could easily upgrade its existing portfolio.
It is to be hoped that Dell sleeps on it over the weekend, and lets 3Par fall to HP. That would serve HP right for its bizarre, defensive tactics. The trouble is all this "clash of the tech titans" rhetoric has gone to everyone's heads, and traders are still betting that we have not heard the last of this auction.
After all, it's only shareholders' money.
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