HPE buys Juniper Networks in $14bn blockbuster deal that sets up AI networking battle with Cisco

HPE said the deal provides additional AI networking muscle and effectively doubles its networking business

Hewlett Packard Enterprise (HPE) is acquiring Juniper Networks in a $14bn (£11bn) deal that sets up a battle for network supremacy in the AI era between HPE Aruba Networking and market leader Cisco Systems.

HPE said on Tuesday the deal to buy California-based Juniper provides it with additional AI networking muscle and effectively doubles its networking business, creating what it called in a statement a "new networking leader with a comprehensive portfolio that presents customers and partners with a compelling new choice to drive business value."

HPE is paying $40 per share in an all-cash deal that it expects to be accretive to non-GAAP EPS and free cash flow in the first year after the close of the deal.

On a pro forma basis, the new networking segment will increase from approximately 18 per cent of total HPE revenue as of fiscal year 2023 to approximately 31 per cent and contribute more than 56 per cent of HPE's total operating income.

"Wow. This is a bold $14bn bet to take the networking leader crown away from Cisco," said C.R. Howdyshell, CEO of Advizex, a Fulcrum IT Partners company and a top HPE and Aruba partner that has invested heavily in networking as a service.

"It sets up a battle of networking titans, with HPE going head-to-head with Cisco for dominance in the AI networking era."

Cisco declined to comment on the acquisition.

Howdyshell characterised HPE's move as "a bit of a surprise," noting that it "really shows HPE's commitment to dominate the networking market."

"Both companies are channel focused," Howdysell said of Texas-based HPE and California-based Cisco.

"It's going to come down to who is better at focusing on networking and executing a business plan working hand in hand with the channel."

By leveraging industry-leading AI, the combined company is expected to create what HPE called "better user and operator experiences, benefitting customers' high-performance networks and cloud data centres."

As a result of the deal, networking will become the new core business and architecture foundation for HPE's hybrid cloud and AI solutions delivered through HPE GreenLake hybrid cloud platform, according to the statement.

HPE said the combined company will offer "secure, end-to-end AI-native solutions that are built on the foundation of cloud, high performance, and experience-first, and will also have the ability to collect, analyse and act on aggregated telemetry" across a broader installed base.

HPE CEO Antonio Neri said in the statement that the deal represents an "important inflection point in the industry and will change the dynamics in the networking market" by providing customers and partners with a "new alternative" that meets their toughest demands.

"This transaction will strengthen HPE's position at the nexus of accelerating macro-AI trends, expand our total addressable market, and drive further innovation for customers as we help bridge the AI-native and cloud-native worlds, while also generating significant value for shareholders," said Neri.

"I am excited to welcome Juniper's talented employees to our team as we bring together two companies with complementary portfolios and proven track records of driving innovation within the industry."

Upon completion of the transaction, Juniper CEO Rami Rahim will lead the combined HPE networking business, reporting to Neri.

"Our multi-year focus on innovative, secure AI-native solutions has driven Juniper Networks' outstanding performance," said Rahim in the statement.

"We have successfully delivered exceptional user experiences and simplified operations, and by joining HPE, I believe we can accelerate the next phase of our journey."

The HPE-Juniper combination is expected to achieve operating efficiencies and run-rate annual cost synergies of $450m within 36 months post close.

The deal - which is expected to close in late calendar year 2024 or early 2025 - will be funded based on financing commitments for $14bn in term loans.

That financing, HPE said, will ultimately be replaced, in part, with a combination of new debt, mandatory convertible preferred securities and cash on the balance sheet.