The CNNMoney.com August 29, 2010, article discusses the bidding war between Hewlett-Packard (HPQ) and Dell (DELL) for the little-known 3PAR (PAR).
In the article, Kenneth Hackel, president of credittrends.com and CT Capital estimates that 3PAR, “which has never turned an annual profit in its three years as a public company, would need to add over $40 million in free cash flow to make the deal profitable; and would that’s unlikely to happen for at least three years”. Ken likens the “bidding for 3PAR [is] reminiscent of two drunks at a horse auction, whereby the winner is the loser”. Furthermore, Ken believes “3PAR is a value-destroying acquisition because the expected cash return on HP or Dell’s invested capital would be below the cost of capital.” Ken also noted that both companies are actively buying back their own shares as well, leaving less for future acquisitions.
Related articles:
- Hewlett-Packard (HPQ) Fair Value Estimate
- Comment on HPQ
- HPQ, Business Acquisitions, and Share Buybacks
Disclosure: No positions
Kenneth S. Hackel, CFA
President
CT Capital LLC
Subscribe to CreditTrends.com by Email
If you are interested in learning more about cash flow, financial structure and valuation, order “Security Valuation and Risk Analysis” out this fall from McGraw-Hill.
