HP and Dell in War over 3PAR Acquisition -- and Big Corporate Sales

Last Updated Aug 23, 2010 11:11 AM EDT

It was just last week that Dell (DELL) announced that it would acquire 3PAR (PAR) for $1.15 billion. Now comes news that HP (HPQ) has offered $1.6 billion for the storage company. Expect things to get even more heated, because the 3PAR acquisition represents how large corporate IT sales have become the distinguishing battleground between the two vendors.

Dell and HP have been rivals for decades, with the two pushing back and forth to see who would become dominate. One of the big causes of the departure of former HP CEO Carly Fiorina was how Dell had grown massively, while HP sales remained flat.

Much of Dell's growth rode on consumer and small business purchases. But the company has tried to push into large enterprise sales, both by expanding its lines of servers and storage area networks and by acquiring IT consultancy Perot Systems. In other words, Dell wanted to look more like HP. In its latest quarter, Dell saw its big gains among corporate buyers.

However, both HP and Dell have seen flat sales in services and software while pressure on hardware prices continues. Because of the pressure to continue growth -- this is high tech, after all -- all the hardware vendors seek ways to expand the range of products they can sell to clients. It's why HP bought 3COM and why Cisco (CSCO) developed its line of servers and continues to expand its range of network-centric products through acquisitions.

Dell saw a chance to move further into corporate sales, although the 3PAR acquisition would likely cause serious friction with its storage business partner EMC. Not that EMC would likely be able to do anything about its irritation, as it can't afford to overly antagonize a sales channel like Dell. In addition, 3PAR has products designed for cloud computing and hosted service delivery.

HP took note and realized that if Dell acquired a higher end storage line, it could compete with better complete system pricing. Furthermore, everyone has to move into cloud computing, so HP put together a higher bid. The reason it was so much larger was to invoke a clause in the acquisition agreement that allowed 3PAR's board to consider a significantly better offer without having to pay Dell a penalty for breaking the deal.

Expect the bidding war to continue. Dell badly needs the acquisition and HP will not want to let the deal happen. Both have lots of money on hand -- Dell with $11.7 billion and HP with $14.7 billion, according to their most recent filings. It will be a matter of which perceives the greater need.

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Image: Flickr user dok1, public domain.
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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.