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When HPE announce its intention toacquire Juniper Networksfor $ 14 billion in cold , hard John Cash in the beginning this month , it was a act of a jounce . Sure , HP had already bought Arubain 2015 for around $ 3 billion . snaffle another networking ship’s company would presumptively just add another bed to that business . Of course , there are always complication incorporating one large administration into another , and HP does n’t exactly have the best record for beinga smooth operatorwhere that ’s concerned over the years .
But amazingly , the companies did n’t pose this witting coupling as a pure networking play . In fact , in a blog postannouncing the deal , Juniper CEO Rami Rahim indicate it was more about AI . “ This combination with HPE is gestate to enable us to fork over more comprehensive , more competitive , truly end - to - remnant experience - first AI - aboriginal solutions , ” he write .
Regardless of how you put it , the deal , which devote $ 40 a share , or a 32 % premium over the culmination price on January 8 ( perCNBC ) , play the kind of offer that was heavy for Juniper to reject . usurp regulator do n’t object — not just a give these Day — this deal could conclude later this year or ahead of time next . They are yield a lot of wiggle way for regulative oversight .
Since the deal was harbinger on January 12 , HPE investor seem halfhearted about it ; that is , if the stock price is any indication of their sentiment . view that on January 8 , the day the WSJbroke the newsthat a business deal between the two companies was imminent , the gunstock damage sat at $ 17.72 a share . By January 12 , when the quite a little was officially announced , the cost was down to $ 15.89 , and it has been welter there ever since , conclude Thursday at $ 15.92 , down almost 8 % for the month . That ’s not incisively a ringing endorsement .
With a couple of weeks in the rearview to digest this deal , we decided to look at just what this was about , and whether investors should maybe be a little more positive about it . As you ’ll see , the companies think the number look passably good , and they really do equal up well ( so long as HPE does n’t mess it up ) .
Is it really about AI?
It ’s hard to ascertain anything these days in tech that is n’t being set with an AI focus , so it should n’t follow as a surprise that the companies are make AI the centerpiece of this hatful . But is that really accurate ?
HP cerebrate it is . “ Combining HPE and Juniper ’s complemental portfolios supercharges HPE ’s edge - to - cloud scheme with an ability to go in an AI - native environment based on a foundational cloud - native architecture , ” the company wrotein a hyperbole - filled statementon the softwood .
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To be unmortgaged , Juniper does have a nice AI component telephone Marvis , which it acquired whenit bought Mist Systemsin 2019 for $ 450 million . According to Forrester Research , in ablog postanalyzing the pot , Marvis give HPE “ a two - class leading against its competitors by bringing Juniper into the sheep pen . ” That ’s a big food market advantage and seems like a worthwhile investment , at least on its face .
But Constellation Research psychoanalyst Andy Thurai , who both specializes in AI and has “ AI ” in his name , said that it ’s not as clear - deletion as all that . In fact , he sees it as more of a consummate networking play with an AI constituent , contrive to take on mart leader Cisco .
“ While HPE sugarcoats this as an AI leverage , the reality is that this permit them to expand into the networking line of work and base themselves as a major competitor to Cisco , ” Thurai told TechCrunch+ .
He enunciate that the combining of Aruba and Juniper will at once increase the networking segment from 18 % of total gross to 32 % . That ’s quite a startle . But that ’s only the serious intelligence . The regretful news is that he also find out some overlap between Juniper and Aruba in the wireless / WLAN , SD - WAN and switch business , which could offset some of that new marketshare and potentially cause some buyer discombobulation around intersection and services .
Patrick Moorhead , founder and chief psychoanalyst at Moor Insights & Strategy , enounce the acquisition gives HPE the cock to compete better with Cisco . “ Net - meshing , I think this is good for networking customers , as it create a networking entity that can easily deliver on networking than as stand - alone company . Cisco is the 800 - Ezra Pound gorilla in the market , and prominent is good [ when it comes to competing with them ] , ” he pronounce .
And while Moorhead acknowledged that HP has had issues with contain acquisitions successfully in the past , he thinks that ’s mostly in the past . “ HP had a somewhat raw trail record historically with acquiring large software program company like Autonomy , but that changed radically with HPE ’s acquirement of Aruba , ” he said . “ Aruba represents a massive amount of emergence for HPE , and Cray [ the super computer companyit acquired in 2019for $ 1.3 billion ] is also show signs of achiever . ”
Why you gotta be so mad about this deal?
With the above commentary in deal , we ’d be forgiven for foretell investor excitement regarding the deal . After all , if analysts are overconfident the dealings likely has strategical leg , why has HPE lost value since the deal was announced ?
The unforesightful result appear to be chance cost . During apublic callheld by HPE and Juniper after announce the slew , Bernstein psychoanalyst Toni Sacconaghi said that the transaction was “ almost like [ betting ] the ranch in terms of magnitude , ” before saying that the concord was a “ surprisal ” for HPE shareholders , who might have “ preferred more working capital return rather than an ambitious acquirement . ” For an psychoanalyst call , those amount to fight Christian Bible .
gratefully for those of us trying to better understand the deal ’s system of logic , and investor sentiment therefrom , HPE provided some candid commentary . Antonio Neri , HPE ’s CEO , said that after much workplace , that using its resources to corrupt Juniper would ply “ right return on a long - term [ basis ] for [ its ] shareholders . ”
Why does he think that ’s the case ? The sales pitch is dim-witted : HPE does n’t get points with investors for sending more cash out , and it really does believe that the combining is die to give way a stronger HPE in the long - run .
There is reason to be skeptical of using excess hard cash for near - terminus shareholder return effort . Recall that Microsoftonce offereda one - sentence dividend payout worth about one-half of its then cash hoard of around $ 60 billion . That was back in 2004 , when the company was under pressure to get its portion damage travel and better honor shareholders . The result of that massive , one - time dividend payout of $ 32 billion and $ 30 billion worth of planned portion redemption ? A matte bloodline damage until 2013 or so . In other words , the special dividend did nothing .
HPE can point to a similar saga in its own history . Since part with its sis HP , HPE ’s economic value is flat compared to its terms floor set in February of 2018 ; indeed , it has traded in a narrow ring since then , aside from a menstruum at the start of the COVID pandemic .
This means that HPE could use its cash to honor investor who have not offer its shares higher in light of sizable hard currency usage on their welfare — a moribund contribution damage reflects poorly on direction — or use its excess imagination to execute a big softwood that it thinks will pad its economic value long - term and thus supply shareowner return by a different mechanism .
If simply handing out candy does n’t build grocery cap , what shot does HPE have with Juniper under its wing to advance its worth ?
Parsing the company’sdeck , stockholder comment and more , it appear that HPE anticipate several benefit to the Juniper buy . First , some cost saving , though those appear to be modest in the large scheme of the dealings , come in at $ 450 million “ within 36 months ” of the mint ’s close . It also foresee interbreeding - selling between the two companies and a expectant total addressable networking market than it enjoy today due to an exposit product line . That extra networking revenue should add to the company ’s overall tax revenue over clock time .
HPE enjoin investors that the pile will help it generate more ( “ expected to be accretive to ” ) non - GAAP earnings per plowshare and free cash flow in its first year after shut down . Put another way , the time to value for the HPE - Juniper deal will be quick , at least in the centre of the two companies ’ management teams .
Most importantly , however , HPE claims that the deal will “ speed up recollective - full term revenue increment . ” HPE shrink in its mostrecent fourth part , while Juniper postedsimilarly lustreless growth . Perhaps the two companiescangrow more quickly as a brace , but it appears that the accelerated growth that HPE anticipates will not come from only run off on a chop-chop expanding company to its existing business .
That fact , compound with the deal ’s expense — debt is not as cheap as it once was — and you may understand investor anxiousness . But what is the role of a chief operating officer other than to make hard call regarding where to deploy resources ? It ’s well-fixed to take a bunch of cash and throw it in the air . It ’s voiceless to put those same funds to work in a massive flock , like what the endeavour technical school giant is planning !
Investors on the public markets are famously impatient . HPE is demanding forbearance to do something hard . If the gamble bear off in time , we ’ll see it in the data . But from where we seat , if you need dividend , purchase vegetable oil stocks . technical school companies should be constantly work to rebuild themselves or face accidental obsolescence .
