Antonio Neri (HPE)
Analysts have delivered a mixed response to news HPE is poised to acquire high-end network leader Juniper Networks for a hefty US$14 billion.
HPE, with a market value of US$23 billion itself, described its largest acquisition ever as a "highly complementary combination" that would accelerate long-term revenue growth and expand gross and operating margin.
The deal would advance HPE’s portfolio mix, shifting it towards higher-growth solutions while strengthening its high-margin networking business, the companyt argued.
It was also expected to be accretive to earnings and free cash flow in year one.
Analyst firm Morningstar, however, maintained its $16 a share fair value estimate for HPE, saying that while it liked the fact that HPE was investing in and focusing on its more differentiated and profitable networking business, it didn't see the deal either carving out an "economic moat" for the firm, nor as being value-accretive.
"HPE’s pro forma networking business will still be a minority of sales, with commodity-like servers and storage taking up a larger portion of the mix," equity analyst William Kerwin wrote.
"We believe that both HPE and Juniper lag wide-moat networking leaders like Cisco Systems and Arista Networks in technology, customer relationships, and market share."
HPE shares fell around eight per cent on the acquisition news while Juniper's rose 1.7 per cent.
“Over the next couple of years, the integration of Juniper into HPE will create disruption to product lines and sales coverage that will open the door for competitors to take some share,” William Blair analyst Sebastien Najiwrote.
Longer term, the presence of an at-scale networking competitor would likely deliver a "modest" headwind for Cisco and Arista.
While the proposed acquisition would boost HPE's presence in the telecom network equipment provider space, this traditionally vital market for Juniper could become secondary in a combined business, other analysts warned.
The deal would complete a successful transformation of Juniper into a technology provider to cloud service providers, telcos and enterprises with telco likely playing a secondary role for the HPE networking business in future, wrote Emir Halilovic, research director for telecom technology and software for GlobalData.
HPE told shareholders the acquisition was expected to double HPE’s networking business, creating a new networking leader with a comprehensive portfolio that presented customers and partners with a compelling new choice to drive business value.
In addition, the explosion of AI and hybrid cloud-driven business was accelerating demand for secure, unified technology solutions that connect, protect and analyse companies’ data from edge to cloud.
HPE said complementary product portfolios "supercharged" HPE’s edge-to-cloud strategy with an ability to lead in an AI-native environment based on a foundational cloud-native architecture.
Juniper CEO Rami Rahim will lead the combined HPE networking business, reporting to HPE president and CEO Antonio Neri.
“HPE’s acquisition of Juniper represents an important inflection point in the industry and will change the dynamics in the networking market and provide customers and partners with a new alternative that meets their toughest demands,” Neri said.
“This transaction will strengthen HPE’s position at the nexus of accelerating macro-AI trends, expand our total addressable market, and drive further innovation for customers as we help bridge the AI-native and cloud-native worlds, while also generating significant value for shareholders."
Rahim said he believed joining HPE could accelerate the next phase of Juniper's journey.
"In addition, this combination maximises value for our shareholders through a meaningful all-cash premium," he said. "We look forward to working with the talented HPE team to drive innovation for enterprise, service provider and cloud customers across all domains, including campus, branch, data center and the wide area network.”
The transaction is expected to close in late 2024 or early 2025, subject to regulatory approvals, approval by Juniper shareholders and satisfaction of other customary closing conditions.
Last October, Juniper laid off 440 staff as part of a US$59 million restructuring process.
