Analyst: Fundamentals of DoJ Lawsuit Against HPE-Juniper 'Correct'Analyst: Fundamentals of DoJ Lawsuit Against HPE-Juniper 'Correct'

The U.S. Department of Justice (DOJ) lawsuit that aims to stop HPE’s proposed $14 billion acquisition of Juniper Networks will likely prompt a lengthy legal battle.

That’s according to Eric Hanselman, chief research analyst for TMT at S&P Global Market Intelligence. Filed in the U.S. District Court for the Northern District of California, the complaint alleges the acquisition would eliminate “fierce” head-to-head competition between the companies. The two companies are rival wireless local access network (WLAN) technology providers.

The complaint also alleges the purchase would raise prices, reduce innovation and diminish choice for many American businesses and institutions, in violation of Section 7 of the Clayton Act.

HPE and Juniper Networks oppose the DoJ lawsuit, saying the Department's analysis of the proposed acquisition is “fundamentally flawed.”

Fundamentals of DOJ Lawsuit 'Correct'

“The fundamentals are correct,” Hanselman said of the DoJ lawsuit. “If we look at the number of Wi-Fi vendors, knocking out one of three primary vendors, I could see why they could potentially have concerns. I think realistically, though, there are a number of additional vendors, granted those three (HPE, Juniper Networks, Cisco) are certainly the dominant players. The other part of this is Wi-Fi certainly is the dominant enterprise connectivity technology today … but there also are alternatives. When you start looking at 4G and 5G options, these are starting to become a much more prevalent option, especially when enterprises are starting to look toward things like security. The private wireless movement is gaining significant steam.”

Related:DOJ Wants to Stop HPE's Juniper Networks Acquisition with Lawsuit

S&P Global Intelligence's Eric Hanselman

There are now a range of different vendors looking to offer private wireless as an alternative, he said.

“And certainly there are certain sectors where there are a lot of attractiveness, especially in large campus environments, manufacturing, warehousing, all sorts of things that private wireless is particularly good at,” Hanselman said. “Certainly it's an open question as to what the extent is to which the DOJ is considering it, but there are a number of different moving parts to this and I guess we'll have to see what happens with the progress of the lawsuit in terms of where this heads.”

This proposed acquisition isn’t unprecedented, he said.

“Certainly in storage we’ve had significant consolidation; granted, there were a larger number of active players,” Hanselman said. “If you take a look at a number of smaller niche technologies in the networking world, we've certainly had a lot of consolidation there. But I think the situation there is that the actual valuations of the transactions have been lower and maybe that's a threshold for the DoJ.”

Related:HPE Channel Ready for Massive Juniper Networks, Aruba Opportunities

Digging Deeper

As part of any DoJ inquiry, it will dig into the market positions of the relevant players and also look at potential mitigations that might help, Hanselman said.

“In this particular case, it's not clear what mitigations might be applied to be able to allay some of the DoJ's concerns,” he said. “With deals of this size, it's always possible that the various interested parties can get creative. So we'll have to see what turns up.”

It's entirely possible that HPE and Juniper Networks could come up with mitigations that would satisfy the DoJ’s competitive concerns, Hanselman said.

“And maybe that's spinoffs, who knows what they could potentially come up with?” he said. “But there are always potential mitigations that can stem DoJ action and that'll be a matter of negotiation with the DoJ because fundamentally it's a matter of satisfying the DoJ's concerns before they proceed to trial.”