(Bloomberg) — Hewlett Packard Enterprise Co. has agreed. On the purchase of Juniper Networks Inc. For $14 billion in a move that would expand its presence in the networking field but raised doubts on Wall Street.
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HPE, a maker of data center hardware, will pay $40 in cash per share for Juniper, the two companies said Tuesday in a statement. That price represents more than half of HPE’s $21 billion market capitalization plus a 32% premium over Juniper’s closing price of $30.22 on Monday before talks of a deal emerged.
Networking, the technology that directs the flow of information between devices and over the Internet, will be the new core of HPE, CEO Antonio Neri said in an interview after the agreement was announced. The company said the size of this business line will double once the deal closes.
HPE said it will finance the purchase with term loans that will be replaced over time by “a combination of new debt, mandatory convertible preferred securities and cash.” The companies expect the acquisition, which has been approved by both boards, to be completed by late this calendar year or early 2025.
Since splitting Hewlett-Packard in 2015 into two companies, HPE has focused on trying to expand profitable business lines such as selling high-performance computing and cloud services. But the company has struggled to grow more than roughly 2% over the past few years. In November, HPE gave a revenue forecast that fell short of analyst estimates after reporting a sharp decline in server sales.
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Juniper, like its larger competitor Cisco Systems Inc., makes networking hardware such as routers and switches. The combination of HPE and Juniper will revolutionize the industry because “there was only one big vendor,” Neri said, referring to Cisco. “Today we are actually creating a second option – a more modern option that customers were ultimately looking for.”
Like much of the technology industry, Juniper has touted the potential for new AI services to fuel growth. Together, the two companies will excel at building data centers and running networks for AI-enabled operations, Rami Rahim, Juniper’s CEO, said in an interview. The companies said Rahim will lead the combined networking business and report to Neri once the deal is completed.
The merger will help HPE “fill a gap in its portfolio, expanding its data center and cloud networking presence,” Bloomberg Intelligence analyst Wu Jin-ho wrote on Tuesday before the deal was announced.
Many on Wall Street expected Spring, Texas-based HPE to make acquisitions after the company said it would sell its stake in H3C for about $3.5 billion. The agreement represents the first major technology deal in 2024, after the worst year for mergers and acquisitions since 2013. After global deals reached a record level of $3.82 trillion in 2021, they fell to $2.17 trillion last year, according to data compiled by Bloomberg.
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 a deal was imminent. Some analysts have questioned the potential acquisition, saying that HPE’s purchase of a legacy technology company like Juniper could complicate its growth initiatives. Others pointed to the risks of increased debt loads or overlapping product lines that would confuse customers.
“Juniper has long been an asset that struggles with equity losses/large exposure to the service provider market, and it’s unclear how simple the integration will be, given the different software stacks,” Sanford Bernstein analyst Tony Sacconaghi wrote. Juniper stock fell 7.8% in 2023 after an 11% decline in 2022.
Juniper shares were little changed in extended trading after the agreement was announced. Earlier, the stock jumped 22% — its best day since January 2004 — to close at $36.81. Analysts estimate annual revenue at the Sunnyvale, Calif.-based company will decline 2% to $5.51 billion in 2024. Juniper had 11,506 employees as of Sept. 30.
JPMorgan Chase & Co. and Qatalyst Partners served as financial advisors to HPE. Goldman Sachs Group Inc. As a consultant for Juniper. Neary said the acquisition should be completed within the next 12 months, and he does not expect regulatory reviews to slow it down.
–With assistance from Michael Hytha.
(Updates with comments from CEOs starting in third paragraph.)
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