HP Had Room to Spare in 3PAR Bidding War, Top Exec Says

Hewlett-Packard Co. paid less for storage vendor 3PAR Inc. than its “walk-away price,” chief financial officer and interim chief executive Cathie Lesjak told attendees at the Citigroup Global Technology Conference held this week in New York.

“In the case of 3PAR, obviously it was a competitive bidding situation,” Lesjak said. “We had a walk-away price, we got it below our walk-away price and we believe it will generate more than its cost-to-capital,” she said.

Lesjak did not reveal the price at which HP would have turned away from the bidding or how close the actual purchase price came to the vendor's top end figure.

HP won a much-publicized bidding war with Dell Inc. for 3PAR when the $200 million storage vendor accepted HP’s $33 a share, or $2.4 billion, offer and rejected Dell’s last ditch $32 per share revised proposal.

Dell subsequently declined to raise its offer for 3PAR and withdrew from the bidding.

Lesjak acknowledged that the back-and-forth bidding tussle for 3PAR resulted in HP giving away more value to 3PAR’s shareholders than would have occurred in a non-competitive acquisition, but she defended the transaction as financial sound for its promise to bump HP’s profit margins.

“Obviously, it’s not a cost synergy play at all, although there will be good operating leverage--the margins on 3PAR are in excess of 65 percent from a gross margin perspective,” Lesjak said.

"This storage play will help move up our gross margin on average and improve our operating margin at the end of the day as well,” she said.

“It’s not so much that this is a huge growth opportunity—the growth opportunity is really in the cloud and service provider space—but it gives us better margins,” Lesjak said, pointing out that analysts peg the storage cloud market at some $6 billion by 2013.

“We’ve now converted from having OEM low margin to higher margins so there are good margin synergies at the high end of the stack.”

Lesjak said that central to HP’s dogged pursuit of 3PAR was the company’s “unique” cloud computing and service provider storage offering and HP’s intention to immediately slot those products into its converged infrastructure strategy.

“The offering that 3PAR has is unique in the cloud space as well as the service provider space,” Lesjak said. “It also gives us now our own IP [Intellectual property] in a big chunk of the high end of the storage market,” she said.

Lesjak said that HP believes the 3PAR acquisition will “situate us very well within our converged infrastructure space where you really need a strong storage offering, especially a cloud-based storage offering, a networking offering and a compute offering. It builds up that portfolio for us and we expect to get very significant revenue synergies.”

HP outbid Dell four times over the three-week long scrap for 3PAR, which began when Dell tendered a friendly $18 bid on August 16 and HP surprisingly entered the fray with a substantially higher $24 a share offer.