Dell to Acquire Storage Solution Provider Compellent for $960 Million

Includes: CML, DELL
by: Zacks Investment Research

Round Rock, Texas-based PC maker Dell Inc. (NASDAQ:DELL) signed a definitive agreement to acquire storage-solution provider Compellent Technologies Inc. (NYSE:CML). The all-cash deal, valued at $960.0 million, or $27.75 per share of Compellent, is expected to be completed by early 2011. It is expected to be accretive to pro forma earnings in fiscal 2012. Shareholders’ approval is still pending.

Data storage plays a crucial role in cloud computing, which helps users access remote computing power and data over the Internet. Founded in 2002, Compellent Technologies is a global provider of enterprise data storage systems, which facilitates the automation of data movement and management at the block or granular level. The company developed its flagship Storage Center software and hardware solution aimed at mid-size enterprises, selling them through an all-channel network of independent solution providers and resellers.

Dell’s storage offerings drive efficiency and reduce costs by streamlining operations. Compellent’s storage products will complement Dell’s enterprise storage solution suite. After completion, Dell will integrate the Compellent assets into its storage portfolio to strengthen the existing level of its storage offerings. The new unit will facilitate automated data transfer and management, tiering and thin provisioning.

The enhanced storage platform will attract new users. Moreover, Dell will also have access to Compellent’s existing customer base and channel partners.

Dell entered the storage market in 2008 with its purchase of EqualLogic. However, the company was out of luck with its much-hyped bid for 3PAR Inc., losing out to archrival Hewlett-Packard Co. (NYSE:HPQ). 3PAR provides highly virtualized storage solutions with advanced data management features (dynamic tiering, thin provisioning, etc.) for cloud computing environments. We believe the prospective synergy from Compellent’s acquisition will be able to cover the 3PAR loss, to some extent.

In July, Dell acquired Ocarina Networks and Scalent Technology. The consecutive acquisitions were intended to beef up Dell’s enterprise solutions portfolio and were in line with its growth strategy for the enterprise business.

Apart from this, we are encouraged by Dell’s attempt to shift its focus from PC and server roots to become a data-center vendor with a broader scope. Moreover, Dell’s recent endeavor to expand in China is also encouraging. However, soft demand in the Consumer segment, a high debt level and stiff competition in the computing and emerging cloud computing space are concerns.

Currently, Dell has a short-term Hold recommendation, as is indicated by the Zacks #3 Rank.