Dell Bids For Compellent, Puts EMC Relationship At Risk

Dell on Thursday said it is in discussions to acquire storage vendor Compellent, a move that would give Dell one of the industry's leading storage virtualization technologies and a big boost to its channel base.

The acquisition could also be the last nail in the coffin that could bury the special reseller relationship between EMC, which Compellent has identified as its chief storage rival, and Dell, which has been EMC's biggest reseller.

Should the acquisition close as the two companies plan, the price would be a bargain for Dell. The price of the acquisition, $27.50 per share, is a significant discount for Compellent, a company whose share prices closed on Wednesday at $33.60, just cents under its historic high of $34.05 reached on Tuesday.

Dell and Compellent are in exclusive talks to negotiate a possible merger, said David Frink, a Dell spokesperson. Frink declined to say when exclusive negotiation period will expire.

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The bid to acquire Compellent is the latest effort by Dell to make itself into a bigger player in the storage market, an effort that has not always worked to the company's benefit.

Dell in August made a surprise $1.15 billion bid for 3PAR, a developer of storage arrays featuring such services as clustering, tiered storage, and thin provisioning, which allows applications to be configured with more storage capacity than is physically available.

Dell in September eventually lost that bid after a short but intense bidding war with Hewlett-Packard which saw the price for 3PAR eventually soar to $2.35 billion.

However, Dell has had more luck in the past. The company in early 2008 acquired storage vendor EqualLogic, and as a result became one of the top storage vendors in the industry.

Frink said that Compellent's storage technology is complementary to the Dell-EqualLogic technology. EqualLogic brought to Dell the industry's leading iSCSI storage line, whereas Compellent is more focused on the virtualization of storage.

The acquisition of Compellent, if it closes, would also be similar to Dell's acquisition of EqualLogic in another very significant way. Compellent, like EqualLogic before the acquisition, is a 100 percent channel-focused vendor.

While Dell's acquisition of EqualLogic initially caused much angst among EqualLogic's solution provider partners, the deal came just weeks after Dell made a strong commitment to work with indirect sales channels. EqualLogic brought Dell a huge channel sales force that the vendor had to satisfy to make the acquisition work, and in the end almost the entire channel stayed with Dell.

Next: Dell Downplays Concerns About EMC Relationship

Dell's relationship with EMC, its biggest vendor partner, has steadily worsened since Dell acquired EqualLogic, and took a major turn for the worse after Dell said it planned to acquire 3PAR.

EMC took a step back from its relationship as Dell moved to acquire 3PAR, said EMC Chairman, CEO, and President Joe Tucci at a meeting with analysts in October.

EMC's Clariion business was "obviously" affected by Dell's bid for 3PAR, Tucci said. "Obviously, 3PAR was a setback in the relationship," he said.

Frink downplayed any concerns about how the acquisition of Compellent might impact Dell's relationship with EMC. He said that Dell and EMC have had a 10-year-plus relationship serving about 24,000 joint customers, and that Dell plans to work with EMC to support those customers and bring the EMC product line to them.

EMC and Compellent spokespeople were not available to comment on Dell's proposed acquisition of Compellent.

The bid for Compellent was foreshadowed Tuesday by the last-minute cancellation of plans by Compellent's CFO to appear at an investors conference, The Wall Street Journal reported on Thursday.