(Updated at 12:30 p.m. ET, see below.)
The bidding war between rival PC makers Dell (DELL) and Hewlett-Packard (HPQ) over small data storage company 3Par (PAR) has heated up once again. HP announced Thursday that it is increasing its tender offer to acquire 3Par to $33 per share in cash, or about $2.1 billion. The board of 3Par has determined that HP's revised proposal constitutes a "Superior Proposal" and notified Dell of its intention to terminate its merger agreement with it.
HP's tender offer commenced on Aug. 27, 2010, and is scheduled to expire at 12:00 midnight, EST, Sept. 24, 2010. The final closing of the acquisition is expected to occur by the end of the calendar year, HP said.
What began a couple weeks ago when Dell offered $18 a share for 3Par has since developed into an almost ridiculous bidding war between the two rivals. The No. 1 PC maker HP topped Dell's offer after a week with a 33.3% higher bid of $24 a share. Dell came back with a bid of $24.30 last Thursday morning, only to have HP offer $27 by the end of the day.
The following day, Dell matched HP's $27 per share bid, but HP raised the stakes once again, offering to acquire 3Par at $30 per share in cash, or an enterprise value of $2 billion. Dell, then, increased its offer price to $32 per share.
Why are Dell and HP so interested in 3Par that they are driving its price into the realm of the absurd? Both companies are looking for new growth avenues. And as Kevin Kelleher explained, utility storage, which is what 3Par does, helps companies cut costs by moving their operations onto the Internet, also known as the "cloud." 3Par's virtualization approach to utility storage is also more efficient and therefore requires less hardware -- once again helping companies to save money.
But is the price getting too high? That depends on how much the companies think they can milk 3Par -- although in the last quarter, 3Par's total revenue was only $53 million and just $193 million for full fiscal year 2010. 3Par shares closed at $9.65 on Aug. 13, before the first offer by Dell on Aug. 16.
UPDATE: Dell has announced that it will not increase its most recent proposal to acquire 3Par, effectively backing out of the bidding war. Dell said it is entitled to receive a $72 million breakup fee from 3Par upon the termination of its merger agreement.
Dell added that its final improved offer, which included a proposed commercial relationship and an increased breakup fee, was not accepted by 3Par's board of directors.
"We took a measured approach throughout the process and have decided to end these discussions," said Dave Johnson, senior VP at Dell.