Dell Inc plans to buy data storage company 3PAR Inc for $1.15 billion in cash, expanding its offering of data center products to compete with rivals like IBM.
Dell said it would pay $18 a share for 3PAR, an 87 percent premium over Friday's closing price. 3PAR provides storage products that use virtualization technology, which allows companies to boost efficiency.
International Business Machines Corp, Hewlett-Packard and Oracle Corp have been boosting investment in cloud computing and virtualization technology, as companies seek to manage the flow of their data and information.
Cloud computing is technology that allows users to access data and software over the Internet and corporate networks.
Analysts said Dell overpaid for 3PAR, but said the deal brings the company an important new piece of the puzzle.
I think this is a very strong fit for their portfolio, said Morningstar analyst Michael Holt.
He said Dell's $1.4 billion acquisition of EqualLogic in 2008 brought the company a lower-price storage offering. The company has also been reselling more expensive products from EMC Corp.
This gives (Dell) their own product line to push out there when their customers expand beyond the EqualLogic product line, he said.
Dell's computer sales have been hurt by the recession. It said it is seeking smaller acquisitions to diversify and improve its margins.
Wedbush analyst Kaushik Roy said he did not expect other companies like IBM or Oracle Corp to put in a competitive bid, partly because the premium was so high but also because they already had similar storage products of their own.
Dell is paying the premium because they're desperate for margins, and they're desperate to get into the data center, he said.
Shares of 3PAR jumped 86 percent to $17.96 in afternoon trading. Dell fell 0.3 percent to $11.98.
3PAR, which was founded in 1999, posted revenue of $194 million in its last fiscal year, with a gross margin of 65 percent.
Dell said 3PAR's virtualization technology helps customers reduce data management costs, including hardware and energy consumption.
Dell will integrate 3PAR's products into an existing storage portfolio that also includes offerings from its joint partnership with EMC, as well as EqualLogic.
Dell executives said on a call that they would continue to offer EMC products.
BMO Capital Markets analyst Keith Bachman said the 3PAR deal will be a short-term negative for EMC, and speculated that that the Dell/EMC partnership may eventually be eliminated.
We believe that the elimination of a Dell/EMC relationship would be neutral for Dell, since we believe that Dell will be much better served in the long-term by owning/developing intellectual property, Bachman said in a research note.
He said the 3PAR deal is too small to have a material impact on his forecast for Dell.
Dell said the transaction would probably add to its earnings in fiscal 2012. The 3PAR deal is expected to close by the end of the year.
Dell had roughly $11 billion in cash and investments as of its last fiscal quarter. Last year it bought technology services company Perot Systems last year for $3.9 billion in its biggest-ever acquisition.
(Additional reporting by Paul Thomasch; Editing by Derek Caney, Gerald E. McCormick and Lisa Von Ahn)