HP, Others Looked At Acquiring 3PAR Before Dell's Offer

HP's offer on Monday to acquire storage vendor 3PAR a week after Dell first made its acquisition offer public was not the first time HP approached 3PAR about an acquisition.

A top HP executive on Monday said that HP had talked to 3PAR about a possible acquisition before Dell made its offer public, and an SEC filing indicates that a company listed as "Company B" but widely reported in several news outlets. including The Wall Street Journal, to be Hewlett-Packard made an earlier offer.

HP on Monday said it has offered to acquire 3PAR for $1.6 billion.

The offer came just one week after HP rival Dell said it planned to acquire 3PAR for $1.15 billion in a move that would give it enterprise-class storage virtualization technology.

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Dave Donatelli, HP executive vice president and general manager for enterprise servers, storage, and networking, indicated during HP's Monday conference call after announcing its intent to acquire 3PAR that it has been in talks with the company for some time, as reported in the official transcript of that call.

"This has been part of an ongoing M&A process for us," Donatelli said. "As you know, we run a pretty disciplined process and we’ve been looking at this asset for a period of time."

When asked about why HP would offer six times 3PAR's annual revenue to acquire 3PAR, Donatelli said HP sees a "very strong internal business case" around that company.

"We believe that this is an opportunity for us again to grow revenue and grow it at a very nice margin, which drives that business case," he said.

He also compared the acquisition of 3PAR to HP's $2.7 billion acquisition of networking giant 3Com earlier this year.

"Very quickly after (3Com's) acquisition we were able to get them into huge large accounts globally and that’s by taking our scale and marrying that with our technology" he said. "From my perspective the 3PAR transaction is very similar. This is a company that has good technology but does not have the ability to bring it to market."

The saga about the acquisition of 3PAR goes back to late last year, according to SEC filings by both 3PAR and Dell.

Next: From Reseller Partner To Acquisition Target

Dell, in an SEC filing on Monday, said that it and 3PAR in late 2009 and early 2010 explored a potential reseller agreement, but after discussions decided not to move forward.

Dell, however, was not the first to propose an acquisition of 3PAR.

3PAR, in an SEC filing on Monday, said that David Scott, president and CEO of 3PAR, held an informal discussion in May with executives of "Company A" about a possible commercial relationship, at which time Company A executives requested 3PAR to contact it if 3PAR were to consider being acquired by another company.

Scott on May 7 held an informal meeting with Michael Dell, chairman and CEO of Dell, and Dave Johnson, senior vice president of corporate strategy at Dell, about broader commercial relationships between the two companies.

A second company, "Company B," on July 8 contacted Scott to discuss a possible acquisition of 3PAR. The two on July 13 entered into a mutual non-disclosure agreement.

"Company B" is widely believed to be HP.

Management teams from 3PAR and Company B met on July 14 and July 15 to discuss a potential acquisition. Scott on July 14 met with the CEO of Company B, at which time that CEO said Company B was serious about acquiring 3PAR.

3PAR's Board of Directors met to discuss Company B's inquires, and the Board, acting on the suggestion of its outside legal counsel, directed its outside financial advisor to contact two other companies which might be interested in acquiring 3PAR, including Dell and Company A.

Scott on July 16 contacted Dell and Company A about the possibility acquiring 3PAR, and got favorable responses. 3PAR also contacted another company, "Company C," about interest in an acquisition of 3PAR, but received a negative response.

Dell and 3PAR signed a confidentiality agreement on July 17, while Company A and 3PAR signed a similar agreement on July 19.

Next: "Company B" Makes Its Move, But Dell Gets Official First Nod

Company B on July 23 sent 3PAR a non-binding indication of interest in acquiring 3PAR, but 3PAR the next day rejected Company B's offer while continuing negotiations with Company B, Company A, and Dell. Company A on July 29 dropped out of the discussions.

After a series of meetings, Dell on July 30 submitted a preliminary, non-binding offer of $15.00 to $17.00 per share in cash for 3PAR. Dell later raised the offer to $18.25 per share. The two eventually settled on $18 per share.

3PAR on July 31 and August 1 discussed with Company B the possibility of raising its offer for 3PAR, but Company B declined to do so for the time being.

It was during the late-July, early-August timeframe that HP was dealing with the firing of Mark Hurd as chairman, president, and CEO in the wake of allegations of sexual harassment and improperly filed expense reports related to HP's use of an actress as a greeter at HP events. Hurd was cleared of the sexual harassment issues, but left HP on August 6.

While 3PAR is still a relatively small company, it certainly had big plans. Dell, in its SEC filing, said 3PAR expected its fiscal 2010 revenue to be about $401.8 million, up substantially from the $308.8 million it expected for fiscal 2010 and the actual revenue of $240.1 million it reported for fiscal 2011, which ended March 31.

3PAR also expected earnings to reach $32.7 million by fiscal 2013, down from the $85.1 million it expected to earn in fiscal 2010 but up considerably from its loss of $1.6 million in fiscal 2011.