Did HP overpay for 3Par?

Few, if any, expected Dell to win the weeks-long bidding battle for 3Par after HP slammed down a $2 billion bid for the company, trumping Dell’s previous bid by almost $400 million.

Technically, Dell had three business days after HP submitted its Aug. 27 bid to counter the offer. Sometime last Wednesday evening, Dell submitted a final $32-per-share offer to 3Par, topping HP’s bid by $2 per share. As it had before, HP didn’t even flinch; at sunrise Thursday morning, it fired back, offering $33 per share or $2.4 billion.

The message to Dell from HP was clear: We will outbid you.

Dell walked away. But how badly was it really hurt? Dell got a $72 million deal termination fee from 3Par and HP gets to pay more than three times 3Par’s market capitalization — a price that’s 11 times what it earned last year.

“Anytime companies get into a bidding war, the biggest winner is the company up for sale. [3Par’s CEO] David Scott is sitting there smiling, as [are] his staff and his company’s share holders,” said Arun Taneja, lead consultant at Taneja Group in Hopkinton, Mass. “The only question that matters now is can HP make hay with it?”

In fact, HP’s share price fell right after the 3Par purchase a sign investors were nervous that the company had overpaid for its prize.

John Bender, who once ran HP’s mergers and acquisitions group and led the HP-Compaq merger in 2002, said his former company did not overpay for 3Par, and in fact, it needed a win after the contentious departure of CEO Mark Hurd.

While Dell wanted 3Par to build out a cloud services offering and boost it into the enterprise data center arena, HP needed 3Par for two reasons. One, it wants its own storage technology rather than reselling high-end arrays from Hitachi Data Systems. And two, “it’s a strategic blocking move against Dell primarily,” said Bender, managing director of Bender Consulting.

“It’s also a strategic blocking move globally against companies like Acer,” he continued. “Acer is number two in PCs and their CEO has gone on the record and said, ‘I’m going after the enterprise.'”

According to bender, what many pundits and investors don’t see is monetization of the cloud. “If you see how the cloud will take shape over the next three, five or 10 years, HP may have underpaid at the end of the day,” he said.

So where does HP go from here? HP has noted that because 3Par is a Silicon Valley-based company, integrating workforces and products would be a far less daunting task than it would have been with Round Rock, Texas-based Dell. 3Par’s Fremont headquarters is just across the San Francisco Bay, about 22 miles away from HP’s Palo Alto base.

Dave Donatelli, general manager of HP’s enterprise servers, storage and networking, said 3Par will help accelerate HP’s converged infrastructure strategy, meaning its virtual data center and cloud computing capabilities. “We intend to invest in 3Par’s technology to create long-term value for our stakeholders,” he said in a statement.

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