<%@ LANGUAGE=VBScript %> <% Set asplObj=Server.CreateObject("ASPL.Login") asplObj.Protect Set asplObj=Nothing %> Analysis of HP's aqcuisition of 3Par (Sep 2)

Annex Bulletin 2010-10                            August 7, 2010

A partially OPEN edition

Recent...

 

Do As I Say Not As I Do - Analysis of HP CEO Mark Hurd's demise

 

A Mixed Bag of Goodies - Analysis of IBM second quarter business results

EDITORIAL COMMENT

 

Updated 9/02/10, 11:00AM HIT

Analysis of HP-Dell Bidding War for 3Par

HP: "Winner" in Game of Chicken

Headless = Reckless? It Was All About Three's in the End

HAIKU, Maui, Sep 2 Here we go again... history repeating itself.  Different backdrops and characters.  Similar scenarios and lead actor: HP.   Same finale? (outcome).  Time will tell.  More often than not, winners in a game of chicken end up losers in the long run.

Just ask Carly Fiorina, former HP CEO, now a Republican senatorial candidate in California.  We are reminded of her two HP acquisition attempts, both in September.  One failed, the other was "successful," at least initially (see HP & Compaq: Two Losers Don't Make a Winner, Sep 4, 2001).  Later, the Compaq merger was one of the reasons that helped topple Fiorina three-and-a-half years later (see Carly's Fickle Fans, Feb 2005).

Meanwhile, Fiorina's failed acquisition was actually a winner.  For HP shareholders.  It saved HP from a huge embarrassment. 

Ten years ago, the company launched an $18-$20 billion bid for Price Waterhouse Coopers Consulting (PwCC).  After Fiorina got cold feet and the deal eventually fizzled, PwCC tried to take itself public (see What's in a Name? PwC Consulting to Become Monday! , June 2002).  A few months later, IBM acquired it for $3.5 billion (see IBM-PwCC Tie the Knot, Oct 2002).  The original deal's "failure" saved HP shareholders upward of $16 billion.

See what we mean... how sometimes a loser can be a winner?  And how a winner of a game of chicken can end up a loser in the long run?  That's how we feel about Dell and HP today.  Evidently, we are not alone.  The stock market also gave thumbs-up to Dell shares after the company announced it was pulling out of the bidding war (see the chart).   HP shares flat-lined.

HP's "victory" in a quest for 3Par, a small storage company nobody's heard of before the HP-Dell bidding war broke out a few days ago, came earlier this morning, when HP raised its bid by $3 per share to $33 per share.  That would put the total price at between $2.1 billion and $2.4 billion, depending on which valuation you prefer.  You can see on the chart (right) how the market reacted to both news: Dell - up, HP - flat.

It Was All About Three's in the End

When a "lame duck" Board of a headless company starts to throw around billions of shareholders money with the same ease and carelessness with which the same board tossed tens of millions of dollars to buy its disgraced and ousted CEO's silence (Mark Hurd - Do As I Say Not As I Do, Aug 7), it may be time for the shareholders to turn to levity.  For, the alternative is crying in one's soup.

Of course, HP "won" the bidding war for 3Cap.  Just look at the numbers.  It was all about three's.... numerologically speaking.

Let's start with the name of the company and its logo (above).  Everybody could see that three (number 3) would be par for that acquisition.  Let's analyze this morning's Reuters report:

NEW YORK (Reuters) - Hewlett-Packard Co (NYSE:HPQ - News) won the bidding war to buy data storage company 3PAR Inc (NYSE:PAR - News) for $2.4 billion, as rival Dell Inc (NasdaqGS:DELL - News) bowed out on Thursday.

HP raised its cash offer by $3 to $33 per share, beating Dell's $32-a-share offer and ending an escalation of bids that many analysts said had gone too far.

3PAR shares rose 77 cents, or 2.4 percent, to $32.85. They had mostly traded around $10 this year, until Dell announced its initial $18 per share bid in mid-August.

The deal values 3PAR at over eight times sales, and many analysts said that was too high for a company that has barely ever made a profit since it was founded in 1999. Multiples above five are considered lofty in technology deals.

[snip]                                                                                [By Ritsuko Ando]

Speaking numerology...

  •  Final HP price increase for 3Par was $3 per share

  •  The par for the deal was $33, which is 6 numerologically, or two 3's

  •   Value of the deal was $2.1 to $2.4 billion (both are 3's numerologically)

  •  3Par shares rose 2.4%, which is again two 3's numerologically

  •  Initial Dell bid was $18 per share, which is 9 or three 3's numerologically

  •  The bidding process took 21 days, which is 3 numerologically.

  •  The penalty HP has to pay to Dell for breaking the original merger deal is $72 million, which is a 9 or three 3's numerologically.

  •  HP seems to be infatuated with 3Something companies.  Last year, it acquired 3Com, for example (see Some HP Partners Upbeat, Others Wary About 3Com Acquisition, 11/11/09).  3Com, 3Par... is 3Out next? [3 strikes and you're out]

And so on, and so forth... fun with numbers, huh?  Or is there more to it than just fun?

Headless = Reckless?

Back to the world of reason and investments, what to you think: Is 3Par worth today more than three times that it was three weeks ago? Common sense would suggest - no. 

Looking at the above chart, we would have to conclude that Dell deserves kudos for poker-like tactics.  It caused its biggest competitor to shoot itself in the foot.  And it made money of of HP in the process.   Dell said it is entitled to a $72 million payment from 3PAR for breaking their merger agreement.

When the HP Board acted irresponsibly a month ago during the Mark Hurd ouster, we said that maybe they should all resign collectively:

Perhaps it is time for all HP Board members to acknowledge their lapses in judgment and resign collectively.   For, they have failed to protect the HP shareholders' best interests.  Which is their fiduciary duty one and the only raison d'etre (reason for being). 

(An excerpt from Do As I Say Not As I Do, Aug 7)

Instead, the same Board has gone on to make an even greater transgression against its shareholders.  How many more shots in the foot will it take before Wall Street sees that this lame duck "walks like a duck, quacks like a duck, therefore, must be a (lame) duck?"

(Of course, Wall Street has self-serving reasons for not seeing that.  Investor banking fees at $33 per share are much higher than at $18 per share).

Happy Labor Day!

Happy bargain hunting!

Bob Djurdjevic

P.S. Check out this excerpt, actually opening paragraphs, from our Sep 2001 report:

HP & Compaq: Two Losers Don't Make a Winner

PHOENIX, Sep. 4, 2001 - "Two wrongs don't make a right," goes an old saw. "Two losers don't make a winner," would be an analogous headline describing today's $25 billion-Hewlett-Packard acquisition of Compaq.

If in doubt (re. the "two losers" term), just check the HP and Compaq stock charts. Both look like downhill ski slopes. HP stock dropped from $60-something to $20-something in the last 12 months. Compaq's shares plummeted from about $33 to $12 in the same time frame. And that's before the "ski jump" that we can expect after today.

[snip]                                                  [an excerpt from Annex Bulletin, Sep 4 2001]

For two follow-up media stories on this IT industry "megadeal," check out the Wall Street Journal, "HP's Fiorina Takes on a Hefty Job" , and the New York Times, "Wall St. Finds Fault With Computer Merger" - both Sep. 5, 2001 stories.

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Volume XXVI, Annex Bulletin 2010-11
September 2, 2010

Bob Djurdjevic, Editor
e-mail: annex@djurdjevic.com

(c) Copyright 2010 by Annex Research, Inc. All rights reserved.
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