Tuesday, December 14, 2010

Dell to buy Compellent for $27.75 a share

SAN FRANCISCO — Dell Inc. said Monday that it is buying Compellent Technologies Inc. for $27.75 a share in cash in the latest data-storage acquisition by a big tech-sector player, highlighting the growing importance of cloud computing.
Shares of Dell fell nearly 4 percent to close at $13.36. Compellent lost 2.5 percent to close at $27.98, although the stock has risen more than 50 percent as speculation has grown that it was one of several potential acquisition targets in the data-storage space.

Dell had disclosed the negotiations with Compellent last week, including a proposed sale price of $27.50 a share, a move that some analysts said may have been aimed at tempering market expectations for a higher deal value.

Texas-based Dell put the final deal's total equity value at about $960 million and the aggregate purchase price at about $820 million, net of Compellent's cash.

The companies said they expect the deal to close in early 2011.

Dell had been looking to expand its data-storage port folio to become more competitive in the corporate technology market. Earlier this year, it lost a bidding war with rival Hewlett-Packard for 3Par Inc.

The 3Par bidding war triggered a rise in the shares of data-storage companies as Wall Street anticipated the wave of data-storage mergers to continue. Compellent shares have soared more than 130 percent since mid-August.

The focus on data storage was based largely on the push toward cloud computing, which lets companies tap computing power through a network instead of in-house data centers.

'Higher margins'

Wedbush analyst Kau shik Roy said the Compellent deal gives Dell "a product that is much higher margins than what they sell — PCs and servers."

"They are building their own storage product portfolio, which from Dell's standpoint (is) the right to do," he said by e-mail.

But analysts also said the deal could harm Dell's ties to data-storage giant EMC Corp.

"We think the Compellent deal will cause further strain on the EMC relationship," Wells Fargo analyst Jason Maynard said in a note. "However, Dell still has product holes in the high-end storage and deduplication markets, so we think there is room for Dell to continue to resell EMC VMAX and Data Domain."

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