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Dell's Compellent Deal Looks Compelling

ROUND ROCK, Tex. ( TheStreet) -- Dell's (DELL) $876 million attempt to acquire Compellent (CML) may have sent the storage maker's shares into a tailspin, but could ultimately prove to be crucial to Dell's long-term enterprise strategy.

The two companies announced on Thursday that they are in advanced discussions about a possible merger, with Dell looking to pay $27.50 a share for the Eden Prairie, Minn.-based outfit.

Compellent's stock, however, plunged $4.61, or 13.70%, to $29.94 on Thursday. Dell shares rose a penny, or 0.08%, to reach $13.69, as the Nasdaq gained 0.03%.

The move is a positive for Dell. "I feel like it's been a long time coming -- it is a good deal," said Vanessa Alvarez, an analyst at Forrester, in an email to TheStreet. "Compellent, from a technology perspective, has what it takes to move Dell forward in the storage market."

A combination of servers, networking and storage is the tech sector's must-have trifecta, and chatter about about a Dell buy of Compellent has swirled in the months since Dell lost out to HP (HPQ) in the battle to acquire 3Par(PAR).

Compellent, which competes with HP and EMC (EMC), touts tiered storage products that shift older data onto less expensive storage media.

Forrester's Alvarez predicts that this technology will help Dell compete more effectively in large enterprises. "The biggest challenge enterprises face today is the large amounts of unstructured data they are sitting on, and in order to effectively manage it, technologies such as those from Compellent (and 3PAR) are needed," she said.

Compellent recently posted strong third-quarter results and has successfully tapped into growing demand for virtualization.

Dell has made other plays in storage M&A, spending $1.4 billion to acquire EqualLogic in 2008 and snapping up Exanet for an undisclosed fee earlier this year.

Alvarez, however, thinks that we're unlikely to see a repeat of the tug-of-war which saw HP walk off with 3Par. "There will be no bidding war, because although I've said and continue to say [that] Cisco (CSCO) needs storage, they are not there yet," she explained.

--Written by James Rogers in New York.

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