Corporate Acquisition: HP and 3PAR - Research Paper Example

? CORPORATE ACQUISITION: THE CASE OF HP AND 3PAR Introduction Corporate strategies include acquisition of companies or businesses in order to achieve competitive advantage within the market and thus achieve an increase in the market share. It is the need for expanding growth and increasing the market share that Dell and HP were determined to acquire 3PAR through a bidding process. 3PAR Inc. which provides storage utilities through its platforms and architectures and cloud computing, was a desirable acquisition by the two information technology giants and business rivals. The 3PAR acquisition was desirable and convincing to the shareholders of the bidders due to the timely acquisition of storage utilities and thus ability to meet the market demand and the needs of the customers. This research paper gives a critical analysis and discussion of the bidding process, the actual bids and the factors which enabled the bidders to convince their shareholders to support the high bids which were laid for 3PAR. Company Background HP HP or Hewlett-Packard Company is a US multinational company with its headquarters in California. HP is an information technology company which provides its international customers with innovative technologies and software applications in addition to computer and system solutions for various businesses and organizations regardless of their scale of operation or size.1 The company’s products and services have achieved an increasing market share within government agencies, the health sector, and private and public business organizations. In addition to software and application packages, the company manufacturers hardware for data storage and networking.2 Computer accessories such as scanners and printers are among the hardware that the company provides to its customers. To achieve growth within the information and technology market and attain a high level within the competitive ladder, the company has employed various corporate strategies such as mergers and acquisition. As a result of effective corporate strategies the company has been able to beat its business rivals such as Dell. Nonetheless, it must be noted that the company has experienced inevitable challenges within the business environment. These challenges emanate from the economic, political, legal and social environmental forces. To overcome these challenges, HP endeavored to acquire 3PAR Inc. as a way of promoting its storage function and thus creating an appeal to its customers across the world.3 The executives of HP were convinced that through the acquisition of 3PAC Inc. it would be able to create enhanced storage possibilities for its customers and thus achieve a positive impact on individual, government, societal and business computing and business activities. 3PAR Inc. 3PAR Inc. is a US company which manufactures computer systems and software applications for the data storage needs of businesses and organizations. Additionally the company produces packages for organizational management such as human resource management systems and finance and accounts information systems. Hewlett-Packard is the larger company which holds wholly ownership for 3PAR Inc. The storage utilities manufactured by the company have attained success in the market and as a result the company was categorized among technology companies which registered highest growth rate and large shares in the market.4 The company’s products are categorized within the utility storage as they enable organizations to store and process large amounts of information with increased efficiency and effectiveness. As a global leader in provision of utility storage 3PAR Inc. has dynamically tiered, highly visualized, multitenant storage which is designed to provide private and public users with cloud computing services at coat effective prices without compromising on efficiency, quality and reliability.5 Therefore it is through a virtual storage platform that the company is able to eliminate the setbacks facing the traditional information storage platforms, infrastructure and utilities. The company products are designed in a special way so that the client organizations are enabled to save energy consumed in addition to significant cuts on the costs associated to the storage of vast amounts of information. The storage utilities provided by the company have qualities of self management, adaptability, efficiency, compatibility and ability to reduce the complexity of the processes of storing and retrieval of information.6 The Acquisition and Bidding Process The acquisition talks between HP and 3PAR Inc. began after HP successfully trumped Dell in a bid of acquiring the data storage utility vendor. HP bid $1.6 billion against Dell’s $1.15 billion bid. It is a result of HP’s higher bid that 3PAR started to open its financial books to HP to initiate the start of the acquisition talks. The executives at 3PAR were convinced that HP was reasonably likely to be the appropriate bidder for the acquisition. As a result, 3PAR was obliged to inform Dell that it was entering into talks with HP.7 Nonetheless, it was agreed that if the board of 3PAR would endorse the HP deal, Dell could be given a period of three days to raise its bid. However, when HP was endorsed, Dell was no longer in bargain which led to the success of HP in making 3PAR as one of its wholly acquired acquisitions. Nonetheless it was observed that the expectations of investors were that Dell would come up with a better bid during the Three day period. This demonstrated a looming war between the world’s top PC providers. This was consequential as revealed by the immediate rise of 3PAR’s shares from 3.6% to 27.04%. This was much higher than the $18 per share which Dell had bid. In this sense, the $24 per share as offered by HP was preferable. Furthermore a consequential rise in the value of 3PAR shares within the stock market was realized with a drop in Dell’s share value.8 The bidding war which took eighteen days ended with the defeat of Dell. The final price of the bid was a payment of $2.35 cash by HP to 3PAR and thus making the company a wholly acquired subsidiary of HP. It is notable that the final price which HP paid was about twice as compared to the $18 per share which was offered by Dell. At the close of the deal and payments, 3PAR was thus obliged to open its books of account to HP under which it was now being managed.9 The acquisition of 3 PAR by HP meant that the company’s storage utilities ware owned by HP and could be used to expand and enhance its information technology business. Is through this acquisition that investors were more attracted to HP as compared to Dell. Additionally, the market share of HP as demonstrated by the customer base increased significantly within the domestic and international market.10 Reasons to Justify the Bidding and Acquisition Acquisition Better Than Building from Scratch The stakeholders were convinced by the Dell and HP bidders that the acquisition of an already established storage utility company was much effective and cost effective as compared to the building the storage platforms from scratch.11 This justifies the large bids which the shareholders allowed both bidders to place in their pursuit to have 3PAR Inc. as their wholly acquired subsidiary. The success of HP during the bidding process illustrates that the executives of the company were more convincing to the shareholders who comprised of the owners of the company. This thus led to the fact that HP was allowed to offer a larger bid per the 3PAR share as compared to the Dell rivals.12 Building technology especially the storage utilities, platforms and infrastructure from scratch is very costly. This is used to justify the reasons which large companies use to explain the bidding and acquisition of companies which have already established such IT services. The costs associated with building IT storage from scratch include hiring experienced and skilled expertise, building a cohesive system adoption and implementation program, overcoming challenges and more importantly the time factor. It is argued that the costs of building a new storage utility system from scratch would be met by the price that the bidders placed for the acquisition. Nonetheless, what makes sense it the amount of time which would be saved by direct acquisition of the IT storage giant. The HP shareholders were thus convinced that building a new IT storage platforms and utilities would take a significant amount of time and thus they considered placing the bid and acquiring 3PAR Inc. as a deal which made a lot of sense. Synergy of Sales Evaluation of 3PAR’s worth and that of HP illustrates that their synergy would lead to significant increase in their sales revenue. The convincing factor that enabled shareholders of Dell and HP to advocate for the bid on 3PAR acquisition is the synergy which would be enabled by the combination of the business activities of the companies. By the time HP won the 3PAR bid, it had already established partnerships and it was predicted that its acquisition of 3PAR would lead to an increased growth as it had experienced before.13 A 52% growth was expected to be experienced within HP’s corporate activities and businesses as a result of the acquisition.14 The sales revenue for 3PAR’s utility storage services and cloud computing were already admirable during the bidding process. It thus makes sense that the acquisition of the company by HP would only lead to higher growth within HP’s services. This growth would be experienced in relation to the increase in the market share. Furthermore, the success of HP during the bid as compared to Dell was convincing to HP’s shareholders because of the expected positive consequences such as a competitive advantage and attraction of more investors in addition to the expansion of the market. Data storage Technology The data storage technology as offered by 3PAR Inc. was very attractive to both Dell and HP. This justifies the fact that both bidders fought till the end. Nonetheless the success of HP illustrates that its shareholders were convinced that the company needed to upgrade its data storage facilities in a short period of time as a way of blocking its director competitors from attaining a market advantage.15 However what make sense within the acquisition process is the changes in the technological framework in storage and cloud computing which mandated the companies to lay bids for the up to date 3PAR services.16 The dynamism within the technology industry is thus most attributed to the appeal that the bidders had for the 3PAR storage utilities and platforms. The shareholders of HP were highly convinced that the acquisition was a justification of the company’s strategic plan of improving its information technology services and meeting the needs and demands of the customers for an increased return on sales. More specifically, HP needed to go into cloud computing within a very short period of time and this would be achieved effectively through the acquisition of 3 PAR which had already established functioning cloud computing and storage for its private and public customers. Deflationary Business Environment The bidding for the acquisition of 3PAR was motivated by the advantages associated with purchasing a company within a deflationary business r economic environment.17 At the time of 3PAR’s bidding process, the prices for equities and assets were relatively low and as a result the bidders were able to convince their shareholders on the reasons for the large amount of money which was placed during the bidding process.18 Since the price value for technology was low at the time of acquisition, the shareholders of HP were motivated to condone higher bids from the company. This was a corporate strategy by HP which was aimed at enabling it to reap from the business opportunities within the information and technology market. It is for this reason that the storage utilities and cloud computing services of 3PAR were so attractive to HP and thus leading to the fight with its direct competitor until the bid was won and the benefits of the acquisition experienced. Gains in the market share To justify the bidding for the 3PAR storage utilities, the HP and Dell bidders demonstrated to their stakeholders how this would enhance market share in the data storage market.19 The percentage gains in the market share by HP as one of the bidders was aimed at gaining a competitive advantage over data storage giants such as EMC and IBM. It has been revealed that HP achieved up to 25% growth of its market share within the data storage market after the acquisition of 3PAR Inc. The increase in the market share was enabled by the fact that 3PAR had already established a market base within private and public sector including individual data storage needs government agencies and business organizations. Because HP took 3PAR as a wholly owned subsidiary, it means that it also took over its market and clients who were making use of its cloud computing and storage computing services. The loyalty of the customers to the3PAR’s services due to its quality and efficiency was thus to be enjoyed by HP and hence and increased share of the HP market. The gains in the market share due to blockage of direct competitors from gaining from business opportunities.20 This demonstrates the conviction that the stakeholders of the business rivals had for the acquisition of 3PAR and the resultant fight during the bidding process. Nonetheless it can be argued that the failure of Dell does not mean that it would not acquire another storage utility company and gain an increased market share in the data storage market.21 However, it is notable that 3PAR was the initial choice for Dell’s corporate strategy of acquisition. In this regard the company was obliged to fight for the acquisition through bidding. The success that HP achieved during the bidding process is therefore a demonstration of its ability from blocking Dell from acquiring the storage utilities of 3PAR. In this regard, it is correct to point out that HP’s blockage of Dell enabled it to convince its stakeholders for the investment and the consequential increase in the market share within the data storage services. Conclusion The $1.6 bid that HP placed for the acquisition was more desirable for the executives of 3PAR as compared to the $1.15 bid by Dell. These two companies are rivals and business giants within the information technology industry. The 3PAR storage utilities through various cloud computing and data storage service platforms and infrastructure were very appealing to the both bidders. The reasons why the bidders were able t convince the stakeholders on the necessity of the acquisition include the time saving advantage of acquiring storage utility services as opposed to starting from scratch. Additionally, the desire for achieving synergy of sales between the bidder and the acquired company was very desirable. The success that HP achieved in the bid and the consequential acquisition of 3PAR as a wholly owned subsidiary means that its competitiveness and market share grew significantly. As a result of the acquisition, HP was thus enabled to attract more customers and investors in addition to ability to meet the market demand for data storage services and thus an increase in the sales returns. The market position of HP was enhanced as compared to the period before the acquisition of 3PAR as indicated by the growth within the market. Bibliography Marino. "HP Wins 3PAR." Mergers & Acquisitions Report 23, no. 36 (Sep 06, 2010): 32-32 Lucas Mearian. "HP Gets 3Par Amid Kurd Mess." Computerworld 44, no. 17 (Sep 13, 2010): 10 Tamika Cody. "HP Trumps Dells 3PAR Bid." Mergers & Acquisitions Report 23, no. 35 (Aug 30, 2010): 1 Joseph Menn and Helen Thomas. "HP Pushes Price of 3Par Up to $2bn." Financial Times, Aug 28, 2010 Jonathan Marino. "HP Leaps Over Dell again." Mergers & Acquisitions Report 23, no. 35 (Aug 30, 2010): 23 Brian Deagon. "HP Offer for 3Par Fuels New Optimism for M&As, Economy 12% More Deals this Year More Lending, Confidence Help to Fuel the Activity, Much of it in Tech Sector." Investor’s Business Daily, Aug 24, 2010 John Bonasia. "HP to Buy ArcSight in another Big Deal during CEO Search A Flurry of Tech Acquisitions $1.5 Bil Security Purchase Follows 3Par Bidding War as Firm Beefs Up Portfolio." Investor’s Business Daily, Sep 14, 2010 Patrick Seitz. "Dell Tries again to make Deal in Data Storage in Talks to Buy Compellent it Lost Out to Big Rival HP in Bidding for 3Par, and Only a Few Likely Targets Remain." Investor’s Business Daily, Dec 10, 2010 Doug Woodburn. "HP Propels 3Par into its Channel." Computer Reseller News (Dec 13, 2010): 8 David Gelles, Joseph Menn, and Helen Thomas. "HP Fires Fresh 3Par Bid Salvo." Financial Times, Aug 27, 2010 Doug Henschen. "HP Transformation: Autonomy is A Modest Start." InformationWeek no. 1308 (Sep 05, 2011): 14 Mitchell Lee Marks. "Consulting in Mergers and Acquisitions Interventions Spawned by Recent Trends." Journal of Organizational Change Management 10, no. 3 (1997): 267-279 Rina P. Steynberg and Theo H. Veldsman. "A Comprehensive, Holistic People Integration Process for Mergers and Acquisitions." SA Journal of Human Resource Management 9, no. 1 (2011): 1-16 Paul A. Pautler. "Evidence on Mergers and Acquisitions." Antitrust Bulletin 48, no. 1 (2003): 119-221 Richard G. Rudolph. "A Short History of Mergers and Acquisitions." Society of Chartered Property and Casualty Underwriters.CPCU Journal 54, no. 1 (2001): 14-18 Footnotes Read More