Dell’s Compellent bid approaches $1 billion

December 13, 2010 – Dell this morning said it has reached a definitive agreement to acquire Compellent for $27.75 per share, or 25 cents more than Dell offered last Thursday. The $27.75 per share offer translates into about $960 million, or $820 million net of Compellent’s cash.
As I mentioned in my earlier post on this saga, the weird thing about it is that Dell’s offer is still significantly below what Compellent had been trading at. Compellent’s stock at one time hit $34 a share. So this is what the financial people call a “take-under.”

In fact, as I write this Compellent’s stock is trading at $27.92, which is still above Dell’s bid price. That would suggest that investors expect the price to go higher, although almost nobody expects a bidding war to ensue at this stage of the game.

Although most of the financial community seems to think that this is a done deal, it’s important to note that Compellent’s shareholders have yet to approve the deal (although both the Dell and Compellent boards have approved the terms of the deal). And it’s likely that lawsuits against Compellent’s board will be filed.

Since this story may not be over yet, it may be premature to speculate on how Dell will position the Compellent line vs. the Dell/EqualLogic line, but I presume that Dell would position Compellent’s arrays “above” the EqualLogic iSCSI arrays and primarily in the Fibre Channel SAN space.

Whatever the positioning between Compellent and EqualLogic, it’s certainly doubtful that the Dell-EMC reseller relation will last the two years left on the agreement (although Dell officials this morning said that they will continue to offer the EMC options).

According to a note by Stifel Nicolaus analyst Aaron C. Rakers: “For its October 2010 quarter, Dell generated storage revenue of $543 million (3.5% of total; ~3.8% if we include Compellent’s most recent results) revenue, which was up only 7% yr/yr (vs. industry growth rate at +19% yr/yr) and down 13% sequentially. Dell had reported that its EqualLogic (iSCSI SAN) revenue grew 66% yr/yr, which leaves us to estimate ~$165 million in revenue (~30% of Dell’s total storage revenue). IDC recently estimated that Dell had a ~9.1% revenue share in the total external disk storage market, which includes the Dell/EMC relationship; Dell having a ~34% estimated revenue share in the fast growing iSCSI SAN market with EqualLogic.”

Related blog post:

Dell closing in on Compellent acquisition (last Thursday)