Juniper Shareholders Say Yes to HPE

Over 265 million shareholders of Juniper Networks voted in favour of being acquired by Hewlett-Packard Enterprises (HPE) in what is seen as yet another step towards the deal being formalized sometime early in 2025. Texas-based HPE had offered to acquire California-based Juniper for $40 a share in cash for a price of around $14 billion. 

With less than one per cent of the shareholders voting against the merger, the decks have been cleared for the process to move further. The general consensus was a result of the feeling that the merged entities stood a better chance to benefit from the new era of AI network solutions that customers are seeking today. 

Analysts held the view that HPE and Aruba were already going strong in their respective fields and Juniper ads the AI feature through Mist AI, a platform that uses a combination of AI, machine learning and data science techniques to optimize user experiences and simplify operations across wireless access, wired access and SD-WAN domains. 

The decks are now clear for the merger

The approval by the shareholders could well be the last required from Juniper, whose board had also overwhelmingly supported the deal after its initial announcement in January. Not surprising, considering the solid return that Juniper shareholders are likely to get, especially given its shaky position over the past year or so. 

At the time HPE proposed the merger, the Juniper stock was valued at a 32% premium over the closing price on the day these rumors hit the market. It was also 40% more than the value of Juniper’s stock when it bottomed out at the end of 2023 amidst reports of a corporate restructuring designed to stabilize operations. 

Though Juniper posted a 5% increase in 2023 net revenues through the growth of its enterprise verticals, there was a drop in the cloud and service providing business. Overall, it reported a 6% year-on-year drop in revenues for the fourth quarter of the year as well as a sequential decline in revenues to the tune of 2%. Full-year net income also dropped 34% to $310.2 million due to higher personnel and restructuring costs. 

Could there be a stumbling block?

Given the overwhelming support from shareholders, the company may not need to consider a pullout from the deal anymore. Of course, the cost of such a pullout could be in the region of over $400 million dollars by way of termination fees that would go to HPE. Of course, if the latter failed to keep its word, Juniper stands to gain over $810 million dollars. 

Which, at this moment, remains unlikely as HPE perceives the deal as an investment into the future. The company revealed that it proposes to pay for the deal via financial commitments that would eventually be replaced by a combination of fresh debt, convertible preferred securities and cash on its balance sheet. 

The move wasn’t received with any deal of enthusiasm when first announced as the HPE stock price sank $3 dollars a share from the levels of $18 during February. However, since that point in time, the share price has rebounded due to the robust earnings statement that HPE released, causing the stock to hit $20 early in March. 

HPE is investing in its future, say analysts

As mentioned earlier, the general belief among analysts is that HPE would do well to acquire AI-led solutions in case it cannot spend time and money creating one. Through the acquisition, HPE will enhance its existing portfolio and could help consolidate its position in the rapidly evolving network automation and SD-WAN solutions ecosystem that has been shifting to AI-driven and cloud-based solutions. 

“The expanded total addressable market offers HPE new avenues for revenue growth and diversification alongside innovation, particularly in the data center networking, firewalls, and routers market segments. This expansion not only grows Juniper’s footprint in data centers and cloud providers but also opens new market segments for HPE,” say Ron Westfall and Steven Dickens of the Futurum Group in a blog post. 

The duo also note that the deal itself is not without its share of challenges. HPE needs to navigate product line overlaps while consolidating Juniper’s access switching, Wi-Fi controllers, and data center switching with its own existing offerings. This would mean taking some tough decisions on the products to retain and those to phase out, which in turn may have an impact on letting go of resources.  

Then there is also the issue of customer concerns, which we have already witnessed in the Broadcom-VMware merger. In this case, customers would have some issues related to the integration of Juniper’s services into HPE GreenLake and the fate of the former’s ASIC foundry. There could be issues around changes in service quality and tech continuity.