Dell trumps HP by offering 3Par $0.30 per share more, sparks bidding war (2)

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The company, analysts said, knows that if it buys 3Par, it will get a strong foundation on which it can build a cloud computing offering.

"Dell wants to be more of an enterprise player in the data center, and this is part of a jigsaw piece in that puzzle," Peters said.

Moreover, the type of products 3Par sells would help Dell break into bigger corporate customers, such as large institutional banks, that they don't have today.

Analysts also said 3Par is the only company in the high-end storage market that Dell can buy.

However, HP too wants to make inroads in cloud services market and 3Par's technologies will help HP expand its offerings and help it look beyond HDS. HP said 3Par will help accelerate its "converged infrastructure strategy...particularly in cloud and scale-out markets."

Moreover, HP has "a unique ability" to bring 3Par's products to market. "Our reach is something other [companies] simply can't match," Dave Donatelli, HP's head of enterprise servers, storage and networking, said.

But analysts feel that what HP did not announce is that its decision to buy 3Par may be as much strategic as it is tactical because 3Par would not only be a nice addition to its business portfolio but also its offer may be more a move to prevent Dell from growing in the corporate data center business.

"Since they (HP) got involved, it shows they don't want Dell to have this," Rob Enderle, president of technology research firm the Enderle Group, said.

 What will happen next?  

Though HP has not responded to dell's sweetened offer, analysts expect the PC maker to better Dell's offer.

"Given HP's strong cash balance ($14.7 billion), free cash flow ($2.1 billion last quarter) and desire to build out its converged infrastructure strategy (storage, servers, networking), we believe another counter offer is possible," said UBS analyst Maynard Um.

Agrees Stifel Nicolaus analyst Aaron Rakers. "HP [can] easily come back and sweeten the bid further," Rakers said.

HP, ThinkEquity said, will win the bidding war "not just because of HPQ's relative size advantage, but also because HPQ's presence in the high-end Storage market via its HDS [Hitachi Data Systems] relationship could allow it to achieve faster payback than Dell on its investment."

However, analysts cautioned not to write off Dell just yet.

Dell has a strong cash reserve (~$7 billion) and as the original merger agreement between Dell and 3Par gives Dell perpetual matching rights - or the ability to match any counter-offer within three days - all Dell needs to do is match HP's bid rather than bump it by several dollars.

Moreover, Dell and 3Par also modified the original merger agreement to the extent that the latter would pay Dell a termination fee of $72 million "in the event that 3Par receives and accepts another unsolicited acquisition proposal that its board determines to be superior to Dell's increased offer." In other words, 3Par stands to lose $72 million if it walks away with HP.

Dell has one more advantage - HP's bid, which the PC maker claimed was "superior" to Dell's is no longer so and 3Par's board is yet to approve HP's unsolicited bid.

However, both Dell and HP still have to appeal to 3Par's shareholders and persuade them to back one of their respective offers. Currently, HP is doing this at the moment without support from 3Par's executive management and board.

But unless HP substantially raises its offer and by a margin Dell cannot match - 3Par is as good as Dell's.

At 11.35AM (EDT), shares of Dell were trading up 1.03 percent at $11.90. Shares of HP were up 0.60 percent at $38.47.

3Par's shares were down 2.65 percent at $26.05. Analysts said 3Par investors were disheartened with Dell's new offer as they expected it to trump HP's bid by several dollars and not just cents.