Juniper makes $3.4bn network deal
 |
Story Tools
YOUR E-MAIL ALERTS
|
Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.
Or, visit Popular Alerts for suggestions.
|
|
LOS ANGELES (Reuters) -- Network gear maker Juniper Networks says it will acquire network security company NetScreen Technologies for about $3.4 billion in stock.
The move is a bid to diversify away from the telephone companies that now make up its customer base.
The news pushed NetScreen shares up 36 percent Monday while Juniper dropped 11 percent. The deal initially valued NetScreen at about $4 billion but declined with the drop in Juniper's stock price.
Based on Friday's closing stock price, the deal's terms valued NetScreen shares at about $41.37, a premium of about 56 percent.
Based on the initial $4 billion valuation, Juniper would be paying about 11 times fiscal 2004 sales estimates for NetScreen.
"One of the concerns people had was on the valuation of the acquisition and how much the premium was versus the close on Friday," said Aalok Shah, an analyst at Pacific Crest Securities who rates Juniper a "neutral."
"I definitely think it's something that caught people off guard," Shah said.
Other analysts agreed, even if they thought Netscreen's products were some of the best in the network security industry.
"I can't really justify the valuation," said Ryan Tanzi, telecoms analyst with John Hancock Funds, though Tanzi did note that Juniper was getting what he said is considered one of the best security products on the market. "I guess you have to pay for the quality."
Juniper, the No. 2 maker of network gear behind Cisco Systems, said the deal would close in the second quarter. It said that upon closing, the transaction would add to pro-forma earnings, which would exclude purchase accounting adjustments.
The California-based company said it will swap 1.404 of its shares for each share of NetScreen, which is also based in Sunnyvale, California.
Juniper chief executive Scott Kriens said in an interview that the value of NetScreen was justified by the fact that it will add to earnings.
"It's an accretive transaction to Juniper on a non-GAAP basis when you exclude the purchase accounting adjustments. So NetScreen on that basis will be making a contribution in excess of the cost of the transaction," Kriens said.
The move combines Juniper's focus on telecommunications service providers such as Verizon Communications and Deutsche Telekom AG with NetScreen's specialty in network security for corporations, such as Merrill Lynch.
Analysts also said it would help Juniper with the federal market.
"I think that move by Juniper fits in line where security is part of the infrastructure, and therefore it fits into their routing strategy," said Muyyad Al-Chalabi, managing director of advisory services for industry analysis and consulting firm RHK. "You really can not get into the government (market) without a security sort of play."
NetScreen has 900 employees and Juniper has 1,600. They will continue to sell product lines from both companies, company executives said during a conference call.
When asked about cost savings from the deal, Kriens said that was not the point of the merger.
Juniper shares lost $3.24 to $26.23 in afternoon Nasdaq trading, while NetScreen shares gained $9.56, or 36.2 percent, to $35.96, also on Nasdaq.
Buoyed by the news, shares of network security software company, SonicWall rose 11 percent to $9.77, after hitting $10.05, their highest level in more than a year.
Analysts say the premium Juniper put on NetScreen makes its smaller competitor SonicWall look more attractive to investors.
Netscreen has traditionally catered to big companies, but recently it expressed interest in the small-to medium-sized companies, a market which SonicWall focuses on.
One analyst said the acquisition means NetScreen needs to take some time to sort out the integration before making the plunge to compete head to head with SonicWall.
Copyright 2004
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
