Is Juniper Eyeing A Buyout?

Juniper Networks (NYSE:JNPR) has not seen much in the way of shareholder returns over the past five years, with its stock increasing just 15% since November 2011. In fact, the company’s current market price of around $30 is more than 30% below its five-year high of $44. While the stock has performed better over the last six months, speculation has emerged that the company may be looking for a buyer, in order to provide investors with better returns. Juniper is rumored to be seeking a buyout offer with a per share price of around $32, seemingly prompted by activist investor Elliot Management. ^[1] We do not believe that there is much more value to be unlocked in the company’s stock, as evidenced by our $28 price estimate, so the modest premium that Juniper is supposedly soliciting makes sense. However, the company has declined to comment on the speculation.

While an acquisition by a large tech company could certainly be a possibility – with companies such as Ericsson (NASDAQ:ERIC) and HP (NYSE:HPQ) regarded as potential interested parties in the past – going private may also make sense. By going private, the company would be able to work on reviving its business without public investor scrutiny or pressure. ^[2]

See our full analysis of Juniper Networks

Juniper’s Problems

While its switching division has been strong, Juniper hasn’t performed particularly well in its other segments such as routers and security. Its share in the edge and router markets has declined consistently over the past few years due to Cisco‘s (NASDAQ:CSCO) introduction of new product lines and increased competition from Alcatel-Lucent. From 17.8% in 2008, Juniper’s market share in edge routers declined to 15.6% in 2014. In the core router market, its share fell from 28% to 25.4% during the same period. Even the company’s security revenues have fallen significantly, from $704 million in 2011 to $464 million in 2014, with Cisco getting aggressive on pricing and securing some high-end deals.

Another reason for Juniper’s recent troubles has been carriers’ declining capital spending on network expansion and upgrades, though that is expected to get better going forward. However, a big threat lies ahead in the form of the hardware-to-software shift in networking. While Juniper is striving to respond to the growing adoption of software defined networking (SDN) with its open converged framework (OCF), VMware’s expertise in visualization – as well as its acquisition of Nicira, a software-based networking company – poses a serious threat.

Elliot Management Has Been Pushing Juniper

Activist investor Elliot Management, which has a stake of around 4.5% in Juniper, has been urging the company’s management to make certain changes to its structure in the wake of its lackluster performance. Last year, Juniper laid off about 6% of its total workforce, cutting more than 500 jobs and consolidating some of its facilities. The company reduced its global square footage by around 12%, aiming to cut a notable portion of its expenses. Juniper even stopped its business involved in the development of application delivery controller technology, which was not accounting for any revenues. It also announced that routing, switching, security and network management would be consolidated into one portfolio. Juniper said that these changes in its operational structure were made to improve shareholder returns. ^[3] Among the most concerned investors was Elliot Management, who had slammed Juniper’s management for some of their strategies.

Why Go Private?

Going private could offer Juniper a lot more flexibility, as it would be free from public investor pressure and scrutiny, as well as other requirements of public companies (such as frequent analyst and investor meetings). Furthermore, in the public markets a company’s potential and performance is often gauged by its ability to meet near-term targets, while as a private entity Juniper would be able to take a longer-term view in making strategic decisions.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Bezinga’s Weekend M&A Chatter, Bezinga, Oct 4 2015 [↩]
2. M&A Speculation Swirls Around Juniper, LightReading, Oct 6 2015 [↩]
3. Juniper Slashing 500-plus jobs, closing facilities, Network World, Apr 2 2014 [↩]