Why wouldn’t HP jump the McAfee bid instead?

Contact: Brenon Daly

If we had to guess about Hewlett-Packard making an uncharacteristic move and jumping an announced transaction, we would have thought the company would go after McAfee rather than 3PAR. After all, HP has a giant hole in its security portfolio (we might describe it as a ‘McAfee-sized’ hole), while it’s already pretty well covered on the storage side, even if much of its offering is a bit long in the tooth.

Yet that isn’t the way it’s playing out. The recently decapitated company offered $1.7bn earlier this week for 3PAR, adding roughly $410m, or 33%, to the proposed price of the high-end storage vendor. Meanwhile, McAfee’s planned $7.8bn sale to Intel, announced last week, continues to track to a close before the end of the year. (We would note that McAfee is being valued at 3.4 times trailing sales, exactly half the level of 3PAR following HP’s bumped bid, which took the valuation to 7.6x trailing sales.)

HP’s topping bid for 3PAR appears to be a fairly defensive move. For starters, there’s the matter that 3PAR would overlap more than a little bit with its existing core storage offering called StorageWorks Enterprise Virtual Array. Betting on an acquired property to replace – or at the very least, refresh – the heart of a company’s current offering is a risky proposal. On top of that, 3PAR would require a new architecture, rather than just running on top of HP’s existing hardware like its other software-based storage acquisitions (PolyServe, IBRIX and Lefthand Networks).

All in all, looking to derail Dell’s offer for 3PAR appears to be at odds with much of HP’s previous strategy and rationale around storage. And while it pursues that deal (cost what it may), HP passes on McAfee, a one-of-a-kind security asset that would instantly make it much more competitive with IBM, EMC and Cisco Systems. If HP has sincere aspirations about outfitting the next generation of datacenters, we might suggest that it needs to actually own its intellectual property (IP) for security.

So far, however, HP has been content with just OEM arrangements to cover itself for security. (Notably, it has extracted a fairly one-sided agreement with Symantec for consumer anti-malware protection.) And even though buying McAfee would mean an unraveling of a number of those arrangements, we would note that reality isn’t preventing HP from making its bid for 3PAR. Remember that HP currently has an OEM arrangement with Hitachi Data Systems for a high-end offering like 3PAR. Yet it’s prepared to pay – and pay a lot of money – to own the IP itself. Couldn’t the same rationale be used for McAfee?