For years, Juniper CEO Scott Kriens has been critical of Cisco's strategy of offering a broad range of products that address both the corporate and carrier market. Previously, he claimed that Juniper could better serve its carrier customers, because it was focused only on their particular needs.
Anticipating criticism for its shift in strategy, Kriens tried to justify the company's change.
"The question is not whether the network is service provider or enterprise," Kriens said during a conference call. "Those distinctions are outdated."
He said that in the future, end customers will use a combination of network elements that they build for themselves along with services obtained from carriers. He also noted the growing importance of security in these networks and said Juniper's products, as a result of the NetScreen deal, will address these concerns.
Some analysts said the change in strategy is a good move for Juniper.
"Although end customers and sales channels for both companies differ significantly, we believe this combination is likely to improve Juniper's longer-term positioning," Mark Sue, an analyst at Unterberg Towbin, wrote in a research note. "The deal combines two best-of-breed companies with similar cultures, like-minded visions, proximity in accelerating markets."
Under the terms of the deal, Juniper will exchange about 1.4 shares of its own common stock for each outstanding share of NetScreen. Juniper's stock price was $29.47 at the market's close on Friday, making the deal worth more than $3.8bn and giving NetScreen shareholders a 57 percent premium for their shares. However, Juniper's stock price declined 10 percent Monday, reducing the value of the deal to about $3.4bn.
The companies said they expect the deal to close during the second quarter of 2004, if the merger successfully garners shareholder and regulatory approvals.
Urge to merge
Juniper's intended purchase of NetScreen continues a trend toward consolidation in the network security market.
Security technology company Symantec bought secure networking firm SafeWeb last autumn and four security companies the year before. Rival Network Associates bought two companies last year to strengthen its focus on detecting intrusions. Meanwhile, firewall software maker Check Point Software Technologies focused its efforts on offering a more integrated and easily managed approach to securing corporate information systems.
The buy also gives Juniper an entry into the market for products that allow secure access to corporate networks based on a widely used browser technology known as secure sockets layer encryption. NetScreen bought Neoteris, a major player in the sector, in October. Cisco entered the market in November with a new VPN product that is still being tested.
Moreover, the deal should help Juniper appeal to government buyers. Although the company has not broken out sales to the federal government in its earnings, it is focusing more on the sector and recently set up a separate sales division to handle government contract bidding.
Security has been a missing key element in Juniper's government business strategy. Cisco, which has a wide offering of VPN and firewall products, has been better able to address security concerns with its offerings.
"You need to be able to provide a total solution when addressing government business," Scott Spehar, a Cisco vice president, said during a company-sponsored event in Washington, D.C. "It's important to offer security along with the routing and switching. It's definitely more important today than it was three years ago, and I think it's going to be even more important three years from now."
While the acquisition could be a boon for Juniper, the integration of the two companies probably won't be easy. Juniper will need to incorporate about 900 people into its 1,600-employee organisation.
Juniper has acquired companies in the past with varying degrees of success. In May 2002, it bought privately held Unisphere Networks for $740m. Unisphere's edge-routing gear fit in well with Juniper's offerings. Like Juniper, Unisphere focused on the carrier market. The merger provided Juniper with a set of products it did not have. It also allowed the company to address new markets such as broadband aggregation and subscriber management.
But Juniper has struggled with at least one other acquisition. In 2001, it bought Pacific Broadband, a company that made cable modem termination systems, for about $200m. The acquisition was supposed to help Juniper compete with Cisco in the cable market. But two years later, the company gained little traction with the product and discontinued it in August 2003, deciding instead to partner with Arris International, one of the many companies it competed with in that market.
"Juniper's acquisitions in the past haven't exactly worked well," RHK's Al-Chalabi said. "They have their work cut out for them."
