Authors: Musangi Muthui & Zara Madison, CGU SISAT
The Acquisition
3Par was based in Fremont, California and was a leader in the market for computer systems data (utility) storage for cloud computing. “The company’s virtualized storage platform was built from the ground up to be agile and efficient and to eliminate the limitations of traditional storage arrays for utility infrastructures” (HP News Release, 2010). Since technology is advancing rapidly utility storage is critical to businesses today.
Hewlett Packard (HP) and Dell both want to purchase 3Par and a bidding war commences between them. Dell made an initial bid of $1.15 billion ($18/share) almost double ($9.65) of what 3Par’s stock had been selling for. This did not stop HP from bidding $24/share. Dell and HP went back and forth with counter offers and finally 3Par’s board accepted an offer from Dell at $24.30/share. HP made another to 3Par of $27/share and then a day later made an offer of $30/share. 3Par’s board favored Dell in purchasing the business, but HP’s aggressive bidding was more attractive to the investors. HP won the bidding war and obtained 3Par at the price of $2.35 billion ($33/share). Unfortunately, 3Par had to pay Dell $72 million for terminating their merger agreement.
The Motivation/Trigger
HP and Dell’s motivation for purchasing 3Par was to strengthen their position and potential to grow with cloud computing, virtualization, and other storage innovations. Cloud computing allows businesses to scale operations while also reducing costs associated with licensing and maintaining large physical infrastructures that may not be fully utilized at some times, while being woefully lacking at critical peak business times. In a recent survey conducted by North Bridge Venture Partners, scalability, business agility and cost, in that order, were rated as the top three drivers for the growth in cloud computing adoption. However, firms are still concerned with security and interoperability (Nusca, 2012).
HP wanted to create long-term value for their stakeholders. More businesses are moving their operations into the “cloud” and that cuts down on their cost of having the physical storage units, space for the units, and the energy to keep them cool. This strategy is at the heart of solutions delivery in which firms a firm like HP, through the acquisition of 3Par, can generate more value for customers and stakeholders “than the customers can create for themselves by buying only the stand-alone products” (Galbraith, 2002). If HP can effectively integrate 3Par’s current capabilities into a seamless solution offering, they can addresses business leader concerns around security, interoperability and trust when selected a vendor to deliver cloud computing and virtualization solutions for their organizations (Nusca, 2012).
Virtualization is used to imitate hardware with software. This allows less hardware to be used and the operation of networks, servers, and data centers can operate more efficiently. Cloud Computing (3Par) gives HP an opportunity to have a strong presence on the high end of cloud-storage industry. “Combining 3Par’s leading-edge utility storage products with HP’s existing storage solutions will strengthen HP’s unparalleled storage, server and networking portfolio” (HP News Release, 2010). The acquisition hastens HP’s Converged Infrastructure and enables them to prove their customers with superior performance, efficiency, and reliability.
Some challenges HP will need to address include integration of disparate software and hardware, variations in processes, allocation of sales commissions for components of the solutions sold, and cultural differences between the organizations (Galbraith, 2002). HP must ensure that they have the right talent and workforce capability maturity (Curtis et. al., 2001) to package and sell virtualization solutions are in fact agile enough to meet client expectations for scalability. The premium paid for 3Par as a result of the bidding war with Dell adds additional pressure to demonstrate value over time. Indeed the strong interest in cloud computing industry wide bodes well for this type of acquisition, however, competition remains in this sector would be robust as other firms look to expand existing network offerings or acquire smaller companies, as HP did, and thus offer competitive pricing, especially to small and medium-sized businesses with limited budgets and less complex computing needs.
