The bidding war for 3PAR, Inc. (NYSE: PAR) between Dell Inc. (NASDAQ: DELL) and Hewlett-Packard Company (NYSE: HPQ) has gone like this: Dell $18, HP $24, Dell $24.30, HP $27, Dell match at $27, and now HP at $30.
They say fear and greed drive investing, and we are in the midst of a greed trade when most of the market is still fearful. The options activity highlights just how much greed there is with an expectation of a higher bid, says the latest options trading information.
3PAR shares are up more than 24% at $32.39, about 7% higher than the current $30 bid from HP. There has been a merger-arbitrage premium in the stock ever since HP trumped Dell at $24 for a 33% premium.
The call option strike prices keep going higher as the deal price keeps going up. PAR Sept 27.50 to 35 calls saw more than 25,000 contracts trade hands today before 1 p.m. The same strike prices in October options have shown over 11,000 contracts trade hands. PAR put options have been anemic in comparison.
The offer HP made this morning marked the sixth bid. 3PAR started out looking like an expensive bid, but now it isn’t about value. The real issue is about getting more cloud computing order exposure as Cisco Systems Inc. (NASDAQ: CSCO) is starting to enter the data center market to compete against HP, Dell and even International Business Machines Corp. (NYSE: IBM). So the fact that PAR is trading at a mega premium to forward earnings does not matter. And HP and Dell both likely feel that their sales forces can far exceed what 3PAR can do on its own.
There is one highly unlikely scenario that is interesting to consider. So far, 3PAR has been accepting the matched bids by Dell, which has generated a lot of press for the company. Imagine what would happen if 3PAR suddenly says at the next bid, “No thanks, all of this has highlighted the value of our business in the future and our orders are taking off much more than we would have expected now.”
An interesting thought but, like I said, highly unlikely. The options market and stock premium say the bidding war will rage on.
Follow Jon Ogg on Twitter @jonogg.
Double Your Money on the Rumor AND the News — Learn how to cut through the rumor and manipulation surrounding corporate earnings announcements and bank money-doubling option trades all year long. Download our FREE trading guide here.
