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By Jason Stipp | 09-01-2010 03:04 PM

M&A: When Is the Bite Too Big to Chew?

A closer look at credit metrics and the 3PAR deal, plus the dry powder left for corporate M&A.

Jason Stipp: I'm Jason Stipp for Morningstar. As we've seen some high-profile M&A deals come across the newswires recently, we decided to check in Dave Sekera, a senior securities analyst, and Mike Hodel, associate director of equity research, to talk about what these deals might mean to the financial health of companies, how they assess the financial health of companies in these deals, and also the ability of companies to get credit and get deals done?

Thanks, for joining me guys.

Mike Hodel: Thank you.

Dave Sekera: Thank you.

Stipp: First question for you. You recently did an analysis on the 3PAR, HP, Dell fight, the battle that they're having over that acquisition, right now. It's an interesting one, because I think it started out at $18 per share offer, and now it's close to double that, which potentially seems like, that's a lot bigger price tag than before.

When you ran the numbers and looked at the effect of this potential purchase on either HP or Dell, whoever happens to win, what did you see, is it becoming too big of a bite to chew?

Hodel: Looking at the bidding war that's going on right now for 3PAR, we think it's really more of an issue for equityholders than debtholders, and even on the equity side, it's not a huge deal, simply because 3PAR is pretty small relative to HP and Dell. It's a $2 billion type acquisition right now given where the bidding is at and these are companies that have immense amounts of cash in their balance sheet. Dell has about $13 billion in cash sitting around. HP has about $14 billion, so both of these companies can complete this deal without having a material impact on their balance sheets.

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