New York: Dell Inc offered to buy data storage company Compellent Technologies Inc for nearly $1 billion to expand beyond PCs and catch up with rivals Hewlett-Packard Co and IBM in new technologies like cloud computing.
Three months after losing out to HP in a bidding war for another storage firm, 3Par, Dell said on Thursday it is bidding $27.50 a share for Compellent.
That was an 18% discount from Compellent’s closing Nasdaq price on Wednesday, although the shares had already risen 90% since late October when Reuters reported that a deal was being discussed.
Speculation also heated up earlier this week after the company backed out of a Barclays technology conference.
Compellent shares closed Thursday down 13.7% at $29.04, but were still above Dell’s bid, indicating some investors expect a higher bid could emerge. Dell shares were little changed, ending down 3 cents at $13.65.
Dell entered an exclusive agreement with Compellent to negotiate a merger, and the companies said they were holding “advanced discussions.” They added there could be no assurance that they would reach a deal.
But a source familiar with the matter said both parties were pleased with the price. “The deal was inked at $27.50 and both parties wanted a deal at that price,” the source said.
Dell, HP, and International Business Machines have all been pursuing acquisitions in the past year in an attempt to position themselves for an economic recovery and become “one stop shops” for corporate clients’ technology needs.
Dell founder and chief executive Michael Dell told Reuters in an interview on Thursday that his company deserves more credit for a steady transformation from its roots as a computer maker into a full-service technology vendor.
He said most of Dell’s margin and profit now comes from areas other than PCs. “I don’t thing people get that.”
But some analysts say that even with a successful Compellent deal, Dell has far to go in catching up with HP and IBM in areas like cloud computing.
Data storage plays a crucial role in cloud computing, accessing remote computing power and data over the Internet. Dell entered this market in 2008 with its purchase of EqualLogic.
Eden Prairie, Minnesota-based Compellent specializes in storage and recovery of data for small and medium-sized businesses, compared to the high end business targeted by 3PAR.
Cheaper than 3Par
The Compellent deal appears to be a consolation prize for Dell, who lost 3PAR to HP in September. Some analysts had said HP’s final offer of over $2 billion for 3PAR was excessive, driven by the heated bidding war.
The source said the bid valued Compellent at $946 million, around five times sales, compared to multiples of over eight that HP offered for 3PAR and EMC offered for Isilon.
While some analysts said Dell did well to settle for the more affordable option, others said Compellent, unlike 3PAR, was not capable of addressing the needs of customers with large data centers.
“For Dell, it does nothing to help answer some of the big questions that investors have about its strategy in cloud computing,” said Canaccord Genuity analyst Paul Mansky, whose target price of $27.50 was matched exactly by Dell’s offer.
“Dell’s going to have to do one of two things. It’s either going to have to look at private companies which are by definition not as big in terms of an installed base, or you’re going to have to seriously consider new partnerships.”
The recent data storage deals have left few potential acquisition targets in the sector, although CommVault Systems Inc as well as privately held Pillar Data Systems and DataDirect Networks are also seen as potential targets.
Some analysts and bankers say NetApp Inc could also be a target, but at a market capitalization of nearly $20 billion, they noted it could be too big and the major technology companies have already bought storage technologies.
IBM in September announced a deal to buy data analytics company Netezza for $1.7 billion.
Compellent held preliminary talks to be advised by Frank Quattrone’s Qatalyst Partners, which advised 3Par when it was courted by HP and Dell, but it hired Morgan Stanley instead, the source said.
Dell and Compellent said they do not plan to comment further until an agreement is reached or discussions are ended.