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Juniper 'On the Prowl'

Light Reading
LR Mobile News Analysis
Light Reading
11/25/2003
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Juniper Networks Inc. (Nasdaq: JNPR) has a shopping list, and it's checking it twice.

Juniper yesterday filed for a $1 billion "shelf" offering for a variety of market securities, leading several sources to say Juniper is looking to make acquisitions and has been actively vetting candidates. A shelf offering means Juniper has registered to sell securities and raise money on short notice.

"They are on the prowl," says Tim Kraskey, a partner with YankeeTek Ventures and a veteran of the networking startup market.

Some experts on Wall Street concurred – pointing out that Juniper has plenty of cash and no real need to grab more money and potentially dilute its stock at this time.

"With $1.3 billion in cash [short-term securities] on hand, JNPR would not seem to need additional funding, thus suggesting that the shelf filing is intended to fund acquisitions," wrote CIBC analyst Steve Kamman to clients on Tuesday morning.

So what are Juniper’s wants and needs? According to Kraskey – and other sources who asked not to be named – Juniper may want to beef up its wireless networking portfolio. A play there might include any number of wireless infrastructure startups, such as Megisto Systems Inc., Starent Networks Corp., or WaterCove Networks Inc.

A wireless move would be interesting, especially because of the talk that Juniper may be on the outs with LM Ericsson (Nasdaq: ERICY) in its deal to co-market a GGSN router. This partnership has had a rocky history and presents a potential conflict with another big Juniper partner, Siemens AG (NYSE: SI; Frankfurt: SIE) (see Siemens Eyes Cisco Router and Juniper's GGSN Gamble?).

But wait -- Juniper may also be looking to plunge deeper into Ethernet switching and routing. One leading candidate is Force10 Networks Inc., which has established itself as a leader in 10-Gbit/s Ethernet technology.

Is that enough of a list? Well, let’s say Juniper sees the VOIP space as heating up, and it wants to acquire more softswitching or SIP technology to help it route calls over both wireless and wireline networks. How about Sonim Technologies Inc. or Dynamicsoft Inc.?

Heck, the sky’s the limit. Perhaps Juniper does need that extra $1 billion.

Still, many are skeptical that Juniper will pull the trigger. In fact, if this type of thing sounds familiar, it's the same speculation that followed when Juniper filed to raise $350 million in a convertible debt offering last May (see Juniper's Bullish Conversion). Then, as now, tongues wagged. Nothing happened.

Juniper’s biggest acquisition to date was its $740 million purchase of Unisphere Networks in July of 2002 (see Juniper Nabs Unisphere for $740M), which appears to have paid off in the form of a contract with Verizon (see Verizon Expands MPLS Plans). Another venture in the cable networking space – Juniper's 2001 acqusition of cable networking company Pacific Broadband – went nowhere, and ended with it killing its CMTS product (see Juniper Cuts Cable). CEO Scott Kriens and CFO Marcel Gani have been known to be "cash hungry" and they regularly take advantage of stock-market rallies to market securities, as they did in May. Given its history, Juniper is somewhat gun-shy about acquisitions, especially as compared with its richer and more powerful arch-rival, Cisco.

“They [Juniper] have a reputation for thinking they can build everything themselves, so the targets usually have a 'show us the money' attitude,” says Kraskey.

CIBC's Kamman sees an acquisition strategy as an “execution risk,” especially if Juniper’s target were in the enterprise networking space or high-end optical networking. Kamman also said he was concerned about the potential for stock dilution and that the company would be better off pursuing small, technology-focused acquisitions like those pursued by Cisco.

The terms of Juniper’s shelf offering were wide open, including the ability to sell many forms of securities, including common stock, preferred stock, debt, warrants, and other financial products. If Juniper were to sell any of these securities, it would first file a prospectus with the details.

Juniper did not return calls requesting comment.

— R. Scott Raynovich, US Editor, Light Reading

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