by Demian Russian
Hewlett-Packard Company (NYSE:HPQ), the #1 PC maker in the world, announced its board approval of an additional $10 billion share repurchase authorization this morning. HP already has ~$4.9 billion left in its existing $8 billion stock repurchase plan, approved by the board last November, after repurchasing ~$2.6 billion worth of its shares in its fiscal third quarter, which ended on July 31st. HP said it plans to continue to repurchase its shares “opportunistically” as part of its ongoing plan to manage the dilution created by shares issued with HP employee stock plans. HP’s interim CEO Cathie Lesjak said that HP plans to repurchase no less than $3 billion worth of shares in its fiscal fourth quarter. HP currently has ~2.32 billion outstanding shares of its common stock. As of HP’s third fiscal quarter, ending July 31st, the company had $14.7 billion in cash and equivalents with a market capitalization of ~$88.7 billion.
“HP has a strong balance sheet. We plan to be active in repurchasing our shares, and we expect to repurchase at least $3 billion worth of our shares in our fiscal fourth quarter at current price levels. This increased authorization will ensure that we have sufficient capacity to continue to be active in repurchasing our shares prior to our fiscal fourth quarter earnings announcement in November.”
– Cathie Lesjak, HP chief financial officer and interim chief executive officer
HP’s share buyback plan announcement comes amid an escalating bidding war between HP and Dell (NASDAQ: DELL) for high-end data storage maker 3Par Inc.(NYSE: PAR). The Fermont, California-based 3Par manufactures high-end storage hardware and software solutions to meet the growing demand for corporate cloud-computing services. Corporate spending on cloud-computing is expected to grow ~27% a year for the next four years, approaching $55.5 billon by 2014, according to International Data Corporation (IDC).
Dell originally offered $18.00 a share for 3Par earlier this month, but HP followed with an unsolicited bid for $24.00 per share. Dell is allowed to match any rival bid, due to the original merger agreement the company had with 3Par. Dell followed HP’s $24.00 bid with an offer of $24.30 per share. HP then upped their bid to $27.00 a share. After Dell promptly matched the bid, HP raised its offer to $30 a share last Friday. Although 3Par supports HP’s latest offer and has expressed an interest in terminating its merger agreement with Dell, Dell has three business days to match HP’s Friday bid. Dell has ~$7 billion in cash reserves.
Although 3Par has never reported a profit in its only three years as a public company, it’s viewed as a leader in the manufacturing of high-end products specialized for corporate cloud computing environments. 3Par has a signature technology solution, which optimizes storage space on demand by sharing it among multiple clients, called “thin provisioning.”
Stifel Nicolaus & Co. analyst Aaron Rackers says that 3Par is “definitely something that both HP and Dell clearly want. 3PAR has scarcity value for what they want to bring to the table.” Morningstar analyst Michael Holt added that the bidding war between HP and Dell is “getting into crazy levels — 3Par isn’t worth what they’re bidding.”
Position: None in any company mentioned.
Contact the Author: demianrussian@satelliteradioplayground.com
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