Hewlett Packard Enterprise Company (NYSE:HPE) was among the day’s top gainers, as the stock price surged some 14% on Monday following a settlement with the U.S. Department of Justice on a case involving its planned acquisition of Juniper Networks.
Back in January, the DOJ sued the company over its $14 billion proposed acquisition of Juniper Networks, a provider of wireless local area networks. The DOJ ruled that acquiring Juniper, a rival of Hewlett Packard Enterprises, would be anti-competitive, as Hewlett Packard Enterprise Co. (HPE) and Juniper are two of the three largest players in this space.
It should be noted that HPE is a spinoff of HP, the well-known computer manufacturer. HPE is a provider of server, storage, and networking software and is a chief rival of Juniper.
However, the DOJ announced Saturday, June 28, that it had reached a settlement with HPE that will, in effect, allow the merger to go through.
The settlement mandates that HPE divest its Instant On campus and branch business, which allows users to manage their networks through an app. The settlement also mandates that the merged firm license critical Juniper’s advanced Mist AIOps technology to independent competitors. The AI Ops for Mist source code is an important component in modern WLAN systems. The license will be perpetual, non-exclusive, and include other stipulations to facilitate competition.
“Our agreement with the DOJ paves the way to close HPE’s acquisition of Juniper Networks and preserves the intended benefits of this deal for our customers and shareholders, while creating greater competition in the global networking market,” Antonio Neri, president and CEO of HPE, said. “For the first time, customers will now have a modern network architecture alternative that can best support the demands of AI workloads.”
Neri added that the merger, which still has a few regulatory hurdles to clear, will help accelerate HPE’s growth among its high-performance computing (HPC) AI data center and cloud segments.
HPE stock got a sizable price target increase from BofA Securities Monday after the settlement was announced. BofA raised the price target to $24 per share, which would be about 16% higher than the current $20.75 share price. BofA also gave it a buy rating, up from neutral.
BofA’s upgrade was in part due to the acquisition, which it says will create cost synergies and boost its revenue, as well as improve its margins in the HPC and data center segments, according to Investing.com.
This deal might put HPE more squarely on the radar of investors as the stock is cheap, trading at just 10 times forward earning with a price-to-book ratio of 1.
For its fiscal third quarter, its revenue and earnings projections beat estimates, so the momentum could continue, even before the acquisition is finalized.
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