It is almost a little hard to imagine that 3Par's (NYSE:PAR) stock spent the last 18 months more or less languishing. Now it seems to be the little black dress of the technology world.

It was only a week ago that Dell (Nasdaq:DELL) surprised the market with an $18 per share cash offer for this provider of scalable data storage hardware and software, paying an 87% premium at the time. Now Hewlett-Packard (NYSE:HPQ) has stepped up and offered to go one better than Dell. Monday morning HP announced an all-cash offer for 3Par of $24 per share, or $1.6 billion in total.

IN PICTURES: 9 Simple Investing Ratios You Need To Know

Although this bid one-ups Dell by about 33%, it apparently does not include a break-up/termination fee. Given that HP could do the deal with its cash on hand, however, the absence of such a contingency may not make all that much difference.

Why Would Hewlett-Packard Want 3Par?
The biggest reason that HP would want 3Par is that HP is more or less following the same plan as Dell, but started earlier and is further along in the process. Like Dell, HP has a sizable computer business and is active in numerous business-oriented technology segments like servers, data storage and services. Unlike Dell, however, HP is a more formidable competitor to EMC (NYSE:EMC) and IBM (NYSE:IBM) in the storage market today.

Acquiring 3Par will not vault HP into parity with its two biggest rivals. Moreover, the roughly $235 million in revenue that analysts expect for 3Par in its next fiscal year will not make much of a dent relative to the nearly $3.5 billion in revenue that Hewlett Packard recognized in storage for fiscal 2009. That said, it will add appealing scalable technology and it is not unreasonable to think that HP's superior marketing and customer relationships will leverage that 3Par revenue base into a bigger number over the next few years. For HP, then, it is about acquiring interesting technology and products.

Will Dell Take Another Swing?
Dell has a dilemma. Investors were not exactly ecstatic about Dell's bid for 3Par, even if the rationale for the deal made sense. Consequently, it seems fair to think that investors would not be pleased to see the company enter into a bidding war for 3Par. On the flip side, Dell has made it abundantly clear that management is not happy with the company as it currently is and both needs and wants to do deals to achieve the right business mix going forward. (For more, see The Wacky World Of Mergers And Acquisitions.)

If 3Par really is a cornerstone to Dell's future and holds the potential to catapult the data storage business into a more competitive position, maybe management decides it is worth another $800 million over the initial bid. Still, Hewlett Packard's bid already gives a very rich valuation to 3Par, so Dell has to really believe that this is remarkable, unbeatable technology if it wants to push the bid much higher.

The Bottom Line
It is hard not to feel a little sympathy for the investors who sold 3Par stock the week before Dell launched its bid. After all, there is nothing quite like holding an asset that is suddenly everybody's must-have piece of property.

It is not nearly such a positive experience for Dell or HP shareholders. Sometimes there are assets that really are worth a major premium, but bidding wars carry the risk that executives get caught up in the excitement and ego of competition and end up badly overpaying for an asset. It is hard to imagine that 3Par's technology is so valuable that the stock went nowhere fast before the initial Dell bid, so investors hoping that their company is the one to make the final deal for 3Par might want to be careful what they wish for in this case. (For more, see Mergers & Acquisitions: An Avenue For Profitable Trades.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  2. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  3. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  6. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  7. Financial Advisors

    Are Alternatives Right for Your Portfolio?

    Alternative investments are increasingly making their way into retail investors' portfolios. Are they a good fit?
  8. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  9. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  10. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  1. Do hedge funds invest in private companies?

    Hedge funds normally do not invest in private companies because of liquidity concerns. Capital funding for private companies ... Read Full Answer >>
  2. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  3. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  4. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  5. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  6. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>

You May Also Like

Trading Center