HPE Looks Likely to Lose Its Juniper Deal

Hewlett Packard Enterprise (HPE) faces an uphill battle to defend its proposed $14 billion purchase of Juniper Networks. And though HPE vows to fight on after the U.S. Department of Justice sued to block the merger last week, the prospects of winning before the deal’s end-date October 9, 2025, are starting to look thin. It hasn’t helped that the companies reportedly refused to agree to allow the DOJ more time for consideration.

“The US Justice Department's Jan. 30 lawsuit to block Hewlett Packard's bid to acquire Juniper Networks makes a solid case at this stage, we believe, based on the complaint,” wrote Jennifer Rie, senior litigation analyst with Bloomberg Intelligence, in a note last week. The DOJ’s case, she maintains, is “difficult to rebut.”

In its complaint, filed in the Northern District of California, the DOJ focuses in on the potential effects the Juniper merger could have on the wireless LAN (WLAN) market. The DOJ maintains that HPE and Juniper need to continue as rivals to keep the market for wireless LANs competitive. Further, the DOJ says that since HPE and Juniper account for the major competition against WLAN market leader Cisco, unifying them would reduce the leading competitors to two companies holding 70% of the WLAN market.

Here’s a quote from the DOJ’s Acting Assistant Attorney General Omeed A. Assefi, from the agency’s press release:

“HPE and Juniper are successful companies. But rather than continue to compete as rivals in the WLAN marketplace, they seek to consolidate — increasing concentration in an already concentrated market. The threat this merger poses is not theoretical. Vital industries in our country — including American hospitals and small businesses — rely on wireless networks to complete their missions. This proposed merger would significantly reduce competition and weaken innovation, resulting in large segments of the American economy paying more for less from wireless technology providers.”

HPE Cries Foul Against the DOJ

HPE and Juniper immediately struck back at the DOJ’s suit, citing several points in support of their position. First of all, they say, there are not just three WLAN players in the U.S., but at least eight. HPE doesn't specify who these companies are, but according to market researcher IDC, there are at least five major players, though a key market leader, Huawei, is barred from competing in the U.S.:

Another bone of contention according to HPE: The merger has already been approved by antitrust regulators in 14 jurisdictions worldwide, including the EU and the U.K. Only the U.S. and Israel have not yet approved.

Finally, customers haven’t complained about the potential matchup. “The DOJ may need to explain why it's concerned about the impact of a deal when affected customers are not,” stated Bloomberg analyst Rie in her note.

So What’s the Upshot?

By nearly all accounts, HPE faces the prospect of losing its bid for Juniper unless it can wrangle the DOJ to its side. That may entail selling Juniper’s Mist, the AI-infused enterprise network management system that has been the chief competitor to HPE’s Aruba series.

Mist may justifiably be considered a “crown jewel” for Juniper, according to Bloomberg Intelligence senior industry analyst Woo Jin Ho. “HPE’s decision to fight the DOJ’s suit to block the HPE-Juniper deal for competitive reasons illustrates the strategic value in Juniper’s Mist wireless local area network (WLAN) business,” Ho wrote in his own note last week. Mist sales helped generate $572 million for Juniper over the past four quarters, he notes.

In contrast, HPE sales of Aruba looked bleak in the company's latest earnings report.

HPE isn’t ready to concede to selling Mist as a remedy to the DOJ’s objections. But Woo Jin Ho thinks there would still be a value for HPE in acquiring Juniper without Mist. “[Juniper] fills a big void in [HPE’s] enterprise data-center unit, and could complement its AI, traditional server and storage divisions,” he wrote. Whether HPE views the potential for Juniper to bolster these areas, which it considers key to its success, remains to be seen.

The DOJ also isn’t considering a key Mist competitor, Extreme Networks, Ho maintains. As Futuriom has noted, Extreme, like Mist, deploys AI in its Platform ONE solution to manage LAN and WAN elements in a unified fashion. “Juniper's unified access (Mist) business could fetch $2.7-$3 billion, we believe, based on a premium to the valuation of its closest industry peer, Extreme Networks,” Ho wrote in his note.

Ultimately, HPE faces what could prove to be a losing battle, and a costly one. If the deal tanks, HPE must pay Juniper $815 million in termination fees. And there may not be sufficient time to arrange a concession for the DOJ. HPE and Juniper apparently declined to allow the DOJ more time to allow the agency to consider its position, according to the WSJ. Doing so may have set in motion an irreversible juggernaut for HPE.

Futuriom Take: The U.S. Department of Justice appears to have a strong case against HPE’s $14 billion acquisition of Juniper. Failure to allow the DOJ more time to consider its position may have cost HPE the chance to win a concession before the deal’s end date of October 9, 2025.