DOJ Sues To Block HPE’s $14B Acquisition Of Juniper Networks: Five Things To Know
The U.S. Department of Justice Thursday filed a lawsuit to prevent Hewlett Packard Enterprise’s $14 billion acquisition of Juniper Networks, claiming the blockbuster deal will ‘reduce competition and weaken innovation.’ Here are five things you need to know.
The U.S. Department of Justice Thursday filed a lawsuit to prevent Hewlett Packard Enterprise’s $14 billion acquisition of Juniper Networks, claiming the blockbuster deal will “reduce competition and weaken innovation.” The move came as a shock to the networking market and to solution providers, many of whom already considered the tie-up to be nearly a done deal.
HPE and Juniper Networks quickly responded Thursday, firing back at the Justice Department and calling the basis for the lawsuit “fundamentally flawed.”
Solution providers told CRN that a squashed deal would benefit market heavyweight Cisco Systems. Should the lawsuit succeed, it will “weaken” competition in the networking market, solution providers said.
With the HPE-Juniper deal hanging in the balance, here are five things to know about the pending litigation and what it could mean for the networking market.
DOJ Claims Deal Will ‘Raise Prices, Reduce Innovation And Diminish Choice’
The Justice Department’s complaint, filed in the Northern District of California, alleges that the HPE-Juniper acquisition would “eliminate fierce head-to-head competition between the companies, raise prices, reduce innovation, and diminish choice for scores of American businesses and institutions, in violation of Section 7 of the Clayton Act. “
The Clayton Antitrust Act of 1914 prohibits anti-competitive mergers and predatory forms of pricing.
“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,” said Acting Assistant Attorney General Omeed A. Assefi of the Justice Department's Antitrust Division, in a press release. “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.”
The DOJ said the proposed transaction between HPE and Juniper, if allowed to proceed, would further consolidate an already highly concentrated market—and result in U.S. businesses relying on just two companies that command over 70 percent of the WLAN market: the post-merger HPE-Juniper and the market leader Cisco.
Furthermore, the complaint alleges, that HPE “compares the pricing of its wireless access points and network software licenses to Juniper’s and recommends deep discounts below list prices to remain competitive.”
For instance, the complaint alleges, an internal July 2022 price calibration report on Aruba Central licenses for advanced wireless access points recommended that HPE lower the price of its software package to “compete better with [Juniper’s] Mist and [Cisco’s] Meraki,” which it identified as HPE’s “primary competitors.”
HPE, Juniper Networks Vow To Meet DOJ In Court
HPE and Juniper Networks have attacked the U.S. Department of Justice’s lawsuit to stop the merger of the two companies as “fundamentally flawed” and pledged to do battle in the courts to complete the deal.
“HPE and Juniper remain fully committed to the transaction and believe we will prevail in litigation and close the transaction so we can deliver the benefits of this acquisition to our customers,” said HPE and Juniper in a response to the DOJ complaint.
"We believe the Department of Justice’s analysis of this acquisition is fundamentally flawed and we are disappointed in its decision to file a suit attempting to prohibit the closing of the transaction,” the two companies said. “We will vigorously defend against the Department of Justice’s overreaching interpretation of antitrust laws and will demonstrate how this transaction will provide customers with greater innovation and choice, positively change the dynamics in the networking market by enhancing competition and strengthen the backbone of U.S. networking infrastructure.”
HPE and Juniper claimed that there is “extensive evidence” that shows the deal is pro-competitive and the product area that is the focus of the DOJ’s suit—Wireless Local Area Network (WLAN)—is characterized by robust competition, with at least eight alternatives to HPE and Juniper.
“The DOJ’s claim that the WLAN market is composed of three primary players is substantially disconnected from market realities,” said HPE and Juniper. “As customers shift to AI and cloud-driven business strategies for secure, unified technology solutions to protect their data, barriers to entry have decreased and expansion and competition for WLAN has intensified. As such, WLAN is an extremely competitive market with a broad set of players, all of whom are fighting for business and winning bids in competitive RFP processes. The transaction will not impede the ability of other WLAN vendors to vigorously compete.”
HPE also claimed that the “allegations ignore well capitalized competitors in the U.S., several of which hold market share comparable to Juniper and one which holds more than 50 percent market share.”
The Battle For Mist
Sunnyvale, Calif.-based Juniper Networks has spent the last several years transforming around software and injecting artificial intelligence into more places in the network since it acquired Mist Systems in 2019. The result is its leading AI-powered Juniper Mist platform, which competes against Cisco Meraki and HPE Aruba’s own Edge Services Platform (ESP). Juniper’s Mist AI technology would be one of the biggest feathers in HPE’s cap if the deal was allowed to proceed. HPE has said that together with Juniper, the combined company would result in an industry-leading AI-native networking business
The DOJ complaint alleges that pressure from Juniper has forced HPE to "discount deeply and invest in developing advanced software products and features" as part of a multifaceted campaign to “Beat Mist.”
The complaint continues, saying that the “Beat Mist” campaign has failed, resulting in HPE's desire to acquire Juniper instead for $14 billion and therefore should be blocked.
The Stakes For Cisco
The megadeal between HPE and Juniper is expected to double HPE’s networking business, which would create a more formidable networking alternative that will likely give Cisco a run for its money, according to channel partners who told CRN last year that an HPE-Juniper Networks tie-up takes “direct aim” at the networking behemoth.
Partners told CRN that the news of the lawsuit is most likely welcomed by Cisco. The San Jose, Calif.-based tech giant declined to comment on the news of the DOJ lawsuit to block the deal when reached by CRN.
But even with the addition of Juniper Networks, Cisco’s networking business is still nearly three times the size of the HPE-Juniper combination.
For its 2024 fiscal year, Cisco's networking segment, which includes its core switching and routing businesses, posted revenue of $29.23 billion, a 15 percent decline compared to Fiscal Year 2023. HPE’s Intelligent Edge revenue, which includes its Aruba business, sales were $4.53 billion for the company's 2024 fiscal year, which was down from $5.38 billion from the prior-year period. Juniper Networks, meanwhile, posted fiscal year 2023 sales of $5.56 billion, up 5percent from $5.30 billion in Fiscal Year 2022.
Partner Reaction
HPE and Cisco partners alike were "shocked" by the news of the DOJ lawsuit, telling CRN that they were expecting the current administration to be more M&A-friendly, for starters.
"The financial analysts I have talked to recently expected the incoming administration would be very favorable to M&A," one solution provider executive that partners with both Cisco and HPE told CRN. "My first thought was this must be a holdover from outgoing DOJ leadership, so I was shocked this assistant attorney general was appointed just recently by the new administration."
The partners also said that in contrast to the Justice Department’s opinion that the deal would “reduce competition and weaken innovation,” an HPE-Juniper tie-up would in fact boost competition and innovation and help to hold Cisco’s feet a little closer to the fire in terms of turning its attention back on innovating within its core networking business, especially given its more recent focus on boosting its presence in the security market with its $28 billion acquisition of Splunk.
The deal, if shut down, would boost Cisco’s networking market stronghold, partners told CRN on Thursday.
“This lawsuit is totally baffling to me. How many acquisitions has Cisco made in the last 20 years to continue its market dominance? I’m shocked. Cisco has been the dominant player in this market for three decades. If this holds it weakens competition against Cisco and will result in less innovation in the networking market,” another Cisco, HPE and Juniper partner told CRN.
