(Bloomberg) — Hewlett Packard Enterprise Co. has agreed to buy Juniper Networks Inc. for $14 billion. This will expand its presence in the networking space, but sparked skepticism on Wall Street.
Most read by Bloomberg
HPE, a maker of data center hardware, will pay $40 per share in cash for Juniper, the companies said in a statement on Tuesday. That price represents more than half of HPE's $21 billion market value and a 32% premium to Juniper's closing price of $30.22 on Monday, before talks of a deal emerged.
Networking, a technology that controls the flow of information between devices and over the Internet, will be HPE's new core, Chief Executive Officer Antonio Neri said in an interview after the deal was announced. The size of this business will double once the transaction is completed, the company said.
HPE said it would finance the purchase with term loans that would be replaced over time “with a combination of new debt, mandatory convertible preferred securities and cash.” The companies expect the acquisition, which has been approved by both boards, to close by the end of this calendar year or early 2025.
Since Hewlett-Packard was split into two companies in 2015, HPE has focused on expanding lucrative businesses such as selling high-performance computing and cloud services. But the company has struggled to achieve growth of more than about 2% in recent years. In November, HPE gave revenue forecast that fell short of analysts' estimates after the company reported a sharp decline in server sales.
Read more: Debt dealmakers bet on M&A revival to generate $1.3 trillion a year
Juniper, like its larger rival Cisco Systems Inc., makes networking equipment such as routers and switches. The HPE-Juniper merger will revolutionize the industry because “there was only one major vendor,” Neri said, referring to Cisco. “Today we’re actually creating a second option – a much more modern option that customers were ultimately looking for.”
The story goes on
Like much of the tech industry, Juniper has touted the potential of new artificial intelligence services to spur growth. Together, the companies will excel at building data centers and operating networks for AI-powered operations, Juniper CEO Rami Rahim said in an interview. Rahim will lead the joint networking business and report to Neri upon completion of the transaction, the companies said.
The merger will help HPE “fill a gap in its portfolio and expand its data center and cloud network footprint,” Bloomberg Intelligence analyst Woo Jin Ho wrote Tuesday before the deal was announced.
Many on Wall Street expected takeovers from Spring, Texas-based HPE after the company said it would sell its stake in H3C for about $3.5 billion. The agreement marks the first major technology deal of 2024, following the worst year for mergers and acquisitions since 2013. After reaching a record $3.82 trillion in 2021, global deals fell, according to data compiled by Bloomberg last year to $2.17 trillion.
HPE shares were little changed in extended trading. The stock had its worst day since May 2020, falling 8.9% to close at $16.14 in New York after reports the deal was imminent. Some analysts questioned the potential acquisition, saying HPE's purchase of a legacy technology company like Juniper could complicate its growth initiatives. Others cited the risk of increasing debt burdens or overlapping product lines that could lead to customer confusion.
“Juniper has long been an asset that has struggled with share losses/high exposure to the service provider market, and it is unclear how easy it will be to integrate given different software stacks,” wrote Sanford analyst Toni Sacconaghi Amber. Juniper shares fell 7.8% in 2023 after falling 11% in 2022.
Juniper shares were little changed in extended trading after the deal was announced. Previously, the stock had risen 22% – its best day since January 2004 – to close at $36.81. Analysts estimate the Sunnyvale, Calif.-based company's annual revenue will decline 2% to $5.51 billion in 2024. Juniper had 11,506 employees as of September 30.
JPMorgan Chase & Co. and Qatalyst Partners acted as financial advisors to HPE. Goldman Sachs Group Inc. acted as advisor to Juniper. Neri said the acquisition should be completed within the next 12 months and he does not expect regulatory reviews to slow it down.
– With support from Michael Hytha.
(Updates with comments from CEOs starting in third paragraph.)
Most read by Bloomberg Businessweek
©2024 Bloomberg LP