Like EMC, HP pushes around smaller rival in bidding war

In May 2009 NetApp triumphantly announced a $1.5 billion deal to purchase Data Domain, but was quickly outbid by EMC

The HP/Dell bidding war over storage vendor 3Par is shaping up to be a repeat of last year's high-profile battle between EMC and NetApp.

In May 2009 NetApp triumphantly announced a $1.5 billion deal to purchase Data Domain, but was quickly outbid by EMC. Although NetApp raised its bid to $1.9 billion, EMC eventually won the seven-week bidding war with a $2.1 billion offer that provided a key victory over its smaller rival.

Tech M&A deals of 2010

Fast forward to August 2010, and HP has offered $1.6 billion to purchase 3Par, topping Dell's bid of $1.15 billion. If the HP/Dell contest follows the same pattern, Dell will soon raise the bid closer to $2 billion. (See also: Five technology bidding wars preceding EMC vs. NetApp.)

"The strategic value of 3Par to Dell is such that it wouldn't surprise me to see Dell come back with a counteroffer," says Pund-IT analyst Charles King. "3Par is going to go to whichever company has the stomach to stick with the bidding."

Like EMC, HP is trying to push around a smaller competitor. HP reported more than $30 billion of revenue in the most recent quarter, compared to $15.5 billion for Dell. But while the HP/Dell situation is similar to the EMC/NetApp bidding war of 2009, there are some key differences.

At the time of the Data Domain bidding war, EMC reportedly had $7 billion in cash reserves, compared to $2.7 billion for NetApp. According to YCharts, HP has $14.17 billion cash on hand, compared to Dell's $10.88 billion.

While HP clearly has more money to spare in the contest for 3Par, Dell has a much larger cushion than NetApp did when it was pursuing Data Domain.

HP is also in a precarious position with shareholders, partly due to CEO Mark Hurd being forced out of the company in the wake of sexual harassment accusations.

"If HP pushes this too far, they're going to have to come up with some very solid justification," King says. "3Par is a highly innovative company, but this is still a fairly young market. The payoff is further down the road than a deal for a well-known entity like, say, NetApp would be."

But even if one assumes that Dell is in a better position vs. HP than NetApp was vs. EMC, there is still at least one other consideration: 3Par isn't the only option for either HP or Dell.

EMC and NetApp seemed to believe that Data Domain was far and away the best option in the data de-duplication market. 3Par is attractive to HP and Dell because of its thin provisioning and virtualized storage technology. But there are other vendors offering cloud-centric, highly virtualized storage systems (Isilon and Compellent are two examples).

Thus, if either HP or Dell believes the price for 3Par is too high, they may be less gung ho than EMC and NetApp were over Data Domain because they have other options.

"There are other companies in this space," King says. "3Par wasn't alone."

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