Pension Fund Tries To Halt 3Par Sale

September 2, 2010 12:06 PM EDT

In the midst of a bidding war between Dell and Hewlett-Packard for 3Par, a union pension fund has stepped in to stop the sale.

The Steamfitters Union Local 449 Pension Fund filed suit in California Superior Court of Alameda County, charging that 3Par's directors and officers had structured the bidding process to favor Dell, and that they used the information about the merger to enrich themselves at the expense of shareholders.

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Even though 3Par's stock has risen to $32 from about $10 since the first offer was made, the suit says the bidding process and the price of $18 per share was unfair.

3Par has not said whether it will accept the offer from Dell, and the three-day period it had to make a decision expired at midnight Wednesday. Both Dell and HP are offering $27 per share.

"If someone sells you shares that double, and you find they could have tripled, you might be happier than you were the day before but you would still be disappointed," said Darren Robbins, one of the attorneys representing the pension fund. "It tilts the playing field in favor of the initial bidder."

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The pension fund is a shareholder of 3Par, and says the company breached its fiduciary duty by favoring a single bidder over others.

The suit accuses 3Par's board of steering the bidding process towards Dell in order to enrich themselves at the expense of shareholders, by ensuring a cash payout in the event of a merger. The company's directors and officers, according to the suit, own 39% of 3Par's stock, but that stock wouldn't sell on the open market.

When Hewlett-Packard's offered $24, the board decided to negotiate with Dell and included several provisions that would increase the costs to other bidders, such as making it difficult for 3Par to give confidential information to competing bidders, allowing Dell to execute a "short form" merger by acquiring 50% of 3Par's outstanding shares and a termination fee that requires 3Par to pay Dell $53.5 million if a deal doesn't go through.

In addition, the board launched a tender offer with Dell even though they knew that HP was offering a higher price. With the tender offer in place, the board needs only to take no action, while Dell can acquire the outstanding shares. At that point, the 39% that company insiders own has already been tendered to Dell.

The suit accuses 3Par's leadership of self-dealing, because, it says, Dell offered to let them keep their jobs. That created a conflict of interest, since they would get a "double dip" -- keeping their salaries as well as cashing out their holdings. The company's officers knew the full terms of the offers from Dell and HP, whereas 3Par's public shareholders did not.

The pension fund is asking that 3Par withdraw its consent to the Dell sale, and allow the company's shares to trade freely and disclose all the material information about the offers to shareholders.

3Par declined to comment on the suit.

This article is copyrighted by International Business Times, the business news leader