![]() ![]() 3PAR has also gained significant share in midrange storage over the past two years. Win rates against VMAX and XtremIO are increasing. One-third of new orders are all-flash configurations. After introducing the first all-flash 3PAR array last year, the company has sold over 1,000 units. Storage has been an underwhelming part of HP Enterprise for the better part of the past five years, with 3PAR as the one shining segment that has continued to flourish. ![]() In fact, Bracelin notes HP's 3Par line, which the company bought back in September of 2010, is a "dark horse" that could challenge EMC: While the company didn't rule out a mega-M&A deal, the preferred strategy appears to be to make small-to-midsize acquisitions that could help transform the model. While management plans to pursue software-centric technologies with high gross margin models similar to Aruba Networks (acquired for 2.7x EV/sales), it was clear that the company would be very prudent and disciplined relative to valuation, even outlining scenarios of looking at earlier-stage technologies if deemed strategic.Now that it is in the process of breaking away from a much larger, complex organizational structure, the HP Enterprise leadership team didn't seem to have a sense of urgency to rebuild another mega-enterprise IT supplier through consolidation. This should position HP Enterprise with adequate firepower to begin pursuing strategic enterprise assets that could help better position HP's standing relative to competitors, including EMC, Cisco, IBM and Oracle. On the negative side, Pacific Crest's Brent Bracelin notes a reluctance to big deals, even if M&A is "highly likely" after November 1st:īased on the planned structure of HP Inc., it is expected to take on as much of the debt burden as possible while maintaining investment-grade ratings (i.e., debt-to-EBITDA ratio of roughly 2x). Based on the above we believe if HP Enterprise and EMC wait for six months after the spin closes (March / April 2016) to resume a dialogue, they can consummate a tax free merger while maintaining the tax-free status of the spin. Coincidentally we note, it is the same timeline as when EMC’s standstill with Elliott will expire. Ghai puts together the timing of the HP split and EMC’s ongoing relationship with activist firm Elliott Management, which has been pushing for some kind of bold action by EMC:īy the time the HP spin-off is finalized in September /October 2015, one year will have elapsed since the two parties held “substantial economic negotiations”. ![]() In a specific “black-out period” scenario which is relevant to a potential HP Enterprise – EMC deal, the key requirements for a tax-free stock merger between EMC and HP Enterprise while maintaining a tax-free spin of HP are (a) the establishment of a valid business purpose for the HP split, (b) a 1 year black-out period of “no substantial negotiations” between HP and EMC prior to the completion of the HP spin-off and (c) a further six-month blackout period following the spin before talks between the parties can begin. Anti-Morris Trust regulations essentially entail black-out periods for negotiations between parties involved in a “spin-merge” transaction around the date the spin closes in order for the two transactions – the spin and subsequent merger – to remain tax-free. Our analysis of the “Morris trust” tax law suggests subject to “negotiation black-out periods” a tax free merger between EMC and HP Enterprise (post a tax free split of HP) is possible. Among those today making, Macquarie's Rajesh Ghai, who has previously opined that a merger with HP Enterprise seems a logical thing for EMC, today offers up what the tax implications could be for a tie-up: ![]()
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