HP (HPQ) & Dell (DELL) playing high stakes poker over 3Par (PAR)

By: ispeculatornew
Date posted: 08.30.2010 (4:00 am) | Write a Comment  (1 Comment)

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I often get questions when takeover bids are made. “If BHP made an offer to buy Potash for 130$ per share, why would the stock move to $150?

I think we got the perfect example to explain why. It all started when Dell (DELL) made an offer for a little known company, 3Par (PAR). It offered 18$ per share, a very generous offer considering that PAR’s stock was worth less than 10$. You can imagine what happened. 3Par management accepted the offer and it went through, right? Wrong in fact. They did accept the offer but there was speculation that Oracle would make a bid of its own as tech companies with loads of cash look for growth opportunities. A stock that receives an offer for X dollars might move higher simply because investors expect another, higher bid to be made by either the same company or a competitor.

Turns out that HP (HPQ) was the one to make the move as it made a counter-offer for 24$ per share, a big premium over Dell’s offer. And that is when PAR shareholders understood they had the best position of all… their shares were being auctioned off between two tech giants, Dell and HP.

Since that day, both companies have bids, counter-bids and it is still unclear how things will end. On Friday, Dell made another big raise, making an offer of 27$ per share, which HP raised a couple of hours later when it offered 30$. Where will this all end? Unclear but the stock traded over 32$ on Friday fueling speculation that the bidding is not over just yet.

How high could it go?

It’s difficult to say as both companies are already paying a premium of over 200% at this point and while they do have lots of free cash, at some point you would think that one of them will give up. What is clear is that the big winner here will not be Dell or HP but rather 3Par shareholders with a return of over 200% in a couple of weeks. And if anyone was short 3Par? Well as we discussed last week, shorting a stock that is an acquisition target can be costly, especially when the stock goes up so much. Luckily, on such a small stock, there were probably very very few short sellers!

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1 Comment

  1. […] HP (HPQ) & Dell (DELL) playing high stakes poker over 3Par (PAR) […]

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