This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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Juniper Networks (Nasdaq: JNPR), the Sunnyvale, California-based network infrastructure company, is interested in acquiring Aruba Networks or Meru Networks, said a source familiar with the matter and two analysts.
Eric Suppiger, analyst at Signal Hill, noted that Juniper, which began as a company selling routers to telecom carriers, acquired an enterprise networking business when it purchased Netscreen for USD 4bn in 2004. However, continued Suppiger, it lacks a wireless portfolio to compete with Cisco Systems. The second analyst said “Juniper needs a wireless play.”
Suppiger predicted Juniper will acquire either Aruba or Meru, but not both since they sell similar products.
Spokespeople for Aruba Networks (Nasdaq: ARUN), based in Sunnyvale, California and privately-held Meru Networks, also based in Sunnyvale, declined comment. Juniper did not return phone calls.
Last month, Juniper announced that it appointed Kevin Johnson, who headed Microsoft’s platforms and services division, to replace Scott Kriens as CEO. Kriens would maintain his role as chairman. Kriens, while leading perhaps one of the only large contenders to Cisco in the router space, encountered his share of dilemmas, including allegations of improper options trading and acquisitions that, according to pundits, failed to live up to their potential.
In an interview, Kriens said Johnson would maintain a tactical focus on acquisitions. “He’s been where we’re going,” Kriens said of the pace of growth at Johnson’s previous employer of 16 years, Microsoft Corporation.
Analysts have long considered Aruba Networks an acquisition candidate due to its success in the wireless local area network (LAN) market. One said Aruba has reported that it wins wireless LAN contracts 80% of the time against Cisco, which has dominated the market. He added that Aruba’s recent award of Department of Defense certification gives it an additional leg up.
In afternoon trading on Friday, Aruba valued at USD 6.27 per share with a market capitalization of USD 519m. The analyst targeted Aruba’s shares at USD 8 and expects that the company will wait for a higher offer than that before it sells.
In a research note published last week, ThinkPanmure commented on Aruba’s latest earnings. “Aruba’s July quarter was surprising for its strength in a soft enterprise spending environment. Revenue, up 13% sequentially, and break even EPS were at the high end of guidance. Fiscal 2009 guidance of revenues of USD 220-230m and earnings per share of 12 cents to 15 cents were similarly strong, lending credence, in our opinion, to the position that Aruba should continue its impressive growth through the near-term softness.”
Based on Aruba’s guidance, the company trades at 2.3x 2009 revenue estimates.
Meru Networks, for its part, has consistently told this news service it is on an IPO track. In May, new CFO Brett White said he was appointed with the charge to prepare the company to file an S-1 with the Securities and Exchange Commission this year. The company would prepare the document but file only if market conditions seemed amenable to an IPO.
In May, another analyst estimated Meru’s revenue between USD 70m and USD 80m per year and on a fast growth trajectory.
Meru has received USD 96m in venture backing from DE Shaw Group, Lehman Brothers, Clearstone Venture Partners, NeoCarta Ventures, BlueStream Ventures, Evercore Ventures and JumpStartUp Venture Fund.
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