Dell Computer (NASDAQ: DELL) won’t increase its bid for 3 Par (NYSE: PAR). It can’t afford to because of both financial issues and execution risk. 3 Par was little more than a $10 stock two weeks ago. It trades for almost $24 today. 3 Par is small enough that it is almost impossible to call it a strategic acquisition for Hewlett-Packard (NYSE: HPQ), which topped Dell’s bid with a $24 offer.
Dell does not have the management team to integrate a new company into the parent company. Although Dell has a strong balance sheet for M&A activity, it cannot match HP’s.
3 Par’s revenue is about $53 million a quarter, and it has not grown much. It lost a little more than $1 million in the last three-month period. The company has less than $30 million in cash. Neither revenue nor earnings justify the current offer of $1.6 billion. 3 Par, no matter how it wants to describe itself, it a virtualization software company. That means it competes with larger companies VMWare (NYSE: VMW) and Microsoft (NASDAQ: MSFT).
By its own account, “3PAR Utility Storage is the only platform available today that reduces power consumption, promotes environmental responsibility, and cuts total cost of ownership for storage by 50% while giving you the agility to rapidly meet unpredictable business demands.” If that statement were entirely true, it is hard to see why the company only earns $200 million in revenue per year. Perhaps it is not good at getting its message out and is a sort of “hidden treasure” firm.
Virtualization software is not a commodity, but it is more and more frequently available bundled with high-end server software sold by companies like IBM (NYSE: IBM).
The Dell board will not approve a higher bid for 3 Par. HP knows that. It has effectively snatched 3 Par from Dell by paying an irrational price. It can afford that irrational price because it denies Dell access to products that might help it compete with HP if Dell changes management. It also damages Dell’s credibility as a company that can strike a deal and close it.
HP is striking at the core of Dell’s management prowess and it is drawing blood.
Douglas A. McIntyre
Essential Tips for Investing: Sponsored
A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
