M&A Speculation Swirls Around Juniper
Speculation is growing that Juniper Networks is seeking new ownership, either from a trade sale to another listed technology vendor, or via an acquisition that would take it private.
The company, which has had a tumultuous past 24 months, has been the subject of potential takeover speculation for some time, with names such as Ericsson AB (Nasdaq: ERIC) and HP Inc. (NYSE: HPQ) (HP) linked to possible acquisition interest.
So far, though, no takers.
Now Juniper Networks Inc. (NYSE: JNPR), which has been a publicly traded company for the past 16 years, has reportedly hired Goldman Sachs & Co. to see if there is any interest in taking it private for $32 per share, according to a report on investor website Benzinga.
That speculation was confirmed by several Silicon Valley sources contacted by Light Reading, one of whom believes an announcement could come in the next few weeks. "I've been hearing Juniper may go private for a while," says one experienced Valley technology executive, under condition of anonymity. The catalyst is pressure from "the hedge funds," which in this instance is Elliott Management, the activist investor that has been putting Juniper's management under pressure for more than two years, and which forced a change in the board structure earlier this year. (See Juniper Adds Independent Directors to Board and more on Elliott later in this article.)
"It's the same threat as Riverbed," notes the Silicon Valley source, referring to the pressure Elliott Management put on Riverbed technology, which ultimately accepted an offer to go private in December last year. (See Thoma, Teachers Fund Win Riverbed's Hand.)
"In Juniper's case, it would be cool…it is needed," he adds.
Juniper declined to comment, as did Ericsson and HP.
A combination of the speculation, plus some Wall Street upgrades, has boosted Juniper's share price during the past three days of trading by 8.4% to $28.23, giving it a market capitalization of about $10.8 billion. That, though, is still some way short of the $32 mark that Juniper is believed to be seeking.
Trade sale potential
Juniper has been linked with potential takeover activity for several years, most often with long-time partner Nokia Corp. (NYSE: NOK). But the Finnish company is set to acquire Alcatel-Lucent and, as a result, bring on board one of the New IP industry's leading portfolios, headed by Basil Alwan. (See Nokia/AlcaLu: The Key Friction Points and Basil Alwan Interview: The Road to Cloud.)
That move leaves Juniper somewhat exposed and in even greater need of scale. While it may lack the size to survive on its own in the long term, it does have a portfolio, comprising highly-regarded IP systems and a range of SDN and NFV capabilities (a.k.a. New IP) that could benefit many larger companies.
For Ericsson, an acquisition of Juniper would significantly bolster its New IP portfolio and give the Swedish vendor a way to compete with Cisco and Alcatel-Lucent. For HP, such a move would provide a carrier-class router portfolio, customer relationships and reputation.
It makes sense that equipment incumbents are casting covetous glances in Juniper's direction. Despite a period of almost perversely disastrous management under Shaygan Kheradpir in 2014 (see details below), the company still has a peerless reputation for developing innovative, reliable next-generation IP tech and a view of the market that fits with network operator demands. (See Juniper CEO Spies White Box Opportunity.)
In a recent survey of 150 North American service providers, conducted by Heavy Reading, Juniper was named as the incumbent equipment manufacturer that communications service providers (CSPs) would be most likely to entrust with their next-generation infrastructure and services.
That Juniper has been seeking interest also has not escaped the attention of its rivals. One senior executive in the router sector, who requested anonymity, confirmed to Light Reading that Juniper has been "shopping for a buyer."
That executive added that in the absence of any firm offer, "I could see them following Dell's approach and going down the private path." Dell went private in 2013. (See Dell to Go Private.)
And it seems that Juniper is now exploring that option.
The private option
Investor pressure has been shaping Juniper's corporate strategy since early January 2014, when activist investor Elliott Management presented CEO Shaygan Kheradpir, only days into the job, with a detailed assessment of how badly the company was being run. (See Investor to Juniper: 'You Suck'.)
But Kheradpir wasn't in the hot-seat long enough to see how that revamp played out: In November 2014, Kheradpir quit following a "review by the board of directors of his leadership and his conduct in connection with a particular negotiation with a customer." He has just been appointed as CEO of optical vendor Coriant. (See Turmoil at Juniper as CEO Quits and Kheradpir's Coriant Comeback.)
Kheradpir's departure paved the way for Rami Rahim's appointment as CEO. Insiders say the company is now much more settled and focused under his stewardship and there are signs the company is regaining market share and reputation. During its second quarter conference call, company management reported strong market interest in NFV and SDN, and an expectation of improving financials during the second half of 2015. (See New Juniper CEO Can Be Thankful for $14.5M, Juniper Q1 Sales, Profits Exceed Expectations, Juniper Looks to NFV for Growth and Juniper Reports Sequential Growth for Q2 2015 .)
The stock has certainly recovered during Rahim's time as CEO: On the day he replaced Kheradpir it stood at $21.45.
But some influential investors, it seems, still believe Juniper is lacking focus and failing to deliver on its potential, one source said.
A $32-per-share price would give investors a return that, compared with the $21.45 being achieved when Rahim took over, looks adequate.
Becoming a private company may also suit Juniper. "Going private gives you a lot more flexibility. You don't have to report anymore to investors on a quarterly basis and you can make much more difficult decisions," notes a source in the venture capital industry with experience of the telecom sector. "If, say, you need to restructure the business and incur significant restructuring costs, doing that on the public market can sometimes be not received well -- it can lead to the markets taking a dim view. And if you want to do some big strategic move or acquisition, everything in the markets means working around that reporting timetable… [and] you are always judged on your ability to hit near-term forecasts and not longer-term forecasts."
It can be an expensive move, though, notes the VC executive. "You incur a lot of costs, but I wouldn't describe it as a negative move…it doesn't mean the business is performing poorly but may mean there are diverse opinions among the shareholder base."
Going private certainly seems to have been a popular move at Dell. As our senior router executive noted: "From what I hear from Dell employees, they love the flexibility and reduced overhead/expectations."
But such a move also brings constraints, particularly in terms of raising capital and providing incentives. "The reduction of stock makes it more difficult to retain top talent or to have capital for major investments," notes the IP industry source.
— Ray Le Maistre, Steve Saunders, Mitch Wagner and Iain Morris, Light Reading