Shareholders Are Going To Pay For The HP-versus-Dell Ego Battle

As I suspected, the battle between Hewlett-Packard (NYSE: HPQ) and Dell (Nasdaq: DELL) for storage company 3Par (NYSE: PAR) is getting close to the ridiculous. After Dell exercised a provision in its deal with 3Par to match subsequent offers, HP decided to raise the stakes again and bid $30 for the shares.

This pushes the price to about $2 billion, or 10 times trailing revenue. Now, as I have said in prior pieces for Investopedia, 3Par does have some solid products and technology. Its scalable systems are very attractive to companies that either want to try the technology without a major commitment of time and money, or those who have modest initial needs and want a data storage infrastructure that can grow with the company.

But, c'mon ... 10 times sales?

I have got to think that EMC (NYSE: EMC) and IBM (NYSE: IBM) are chuckling a bit over this. 3Par's technology in HP's hands could be dangerous to them (EMC/IBM), but I think you can argue that these companies are offering up a lot of money for the dubious privilege of getting more attention from these larger rivals. I am certainly no IT expert, nor an engineer, but I have to think that EMC and IBM could both develop similarly scalable systems if they really wanted to do so. I know, for instance, that EMC already has some scalable offerings and enhancing them should not be too difficult or expensive.

Ultimately, this bidding battle is brilliant for 3Par shareholders, but HP and Dell shareholders should not be so happy. If either company's CEO can come out and explain why this technology is worth so much and why the company did make a move on 3Par earlier, I would love to hear it. In the absence of such an explanation (likely to come after the battle is won, if at all), I think it is fair to wonder how much of this is about ego and how badly this reflects on the existing underlying businesses of the bidders.

Sometimes these bidding battles work out in the end - Johnson & Johnson (NYSE: JNJ) got into a similar battle a long time ago for Cordis, and I think it was probably worth it in the final analysis. Other times, though, you get a situation like where Boston Scientific (NYSE: BSX) got sucked into a bidding war for Guidant (NYSE: GDT); a move that has certainly not shown itself to be worth the money so far.

Whether or not this deal goes down as another Cordis or another Guidant, I would have some sharply-worded questions for the managers of 3Par's bidders. After all, it was not that long ago that the stock was trading below 4x sales and nobody seemed to care much about it at all.

Disclosure - I own shares of JNJ