Couple of firms are out commenting on news of Ericsson AB's (NASDAQ:ERIC) $2.1 billion acquisition of data network equipment vendor Redback Networks (NASDAQ:RBAK):
- UBS notes the proposed acquisition of RBAK is consistent with firm's view that ERIC is seeking to enhance its IP & IPTV offering with edge routing capability. Notes that RBAK has already secured 12 of the top 20 wireline carriers in the world for its IP edge routers.
RBAK has had little focus on wireless carries & this deal will likely enhance its position globally given ERIC's #1 share in wireless infrastructure. Firm alsos believe RBAK's competitive positioning against CSCO & JNPR in top tier wireline operators is further aided. RBAK's recent loss at VZ, which we believe was due to aggressive efforts by JNPR, likely accelerated RBAK's plans to seek a merger.
UBS ests ERIC is about 6%-8% of JNPR sales. They believe the edge router portion of these sales, which are mostly focused in China, will be at risk post the proposed merger as ERIC will likely seek to sell the RBAK product (primarily SmartEdge) over the JNPR product line in edge opportunities.
- CIBC is downgrading JNPR to SP from SO. While JNPR remains a formidable competitor in both edge and core routing, the firm now believes upside to the stock is limited given the more formidable edge competition of an RBAK/ERIC combination and waning possibility of an acquisition premium.
JNPR needs to decide - sell now or buy bigger and faster. The two possible matches include Motorola and Nokia Siemens. Yet, the first is busy with other acquisitions and (so far) indicated no desire for large acquisitions while the second is bogged down with delayed deal closing and integration.
Though they believe Juniper s relationship with Ericsson (reseller) will remain in place for some time given the breadth of Juniper s product portfolio relative to Redback, they think a decline in the volume generated through this channel is now inevitable. Reseller alliances with Motorola , Nortel or Avaya for example could build some lost traction; but they see less
synergy with those partners across strategies and product lines.
Alternatively, JNPR could turn more aggressive in consolidation. However, options are less compelling (access or enterprise) and are likely to have a negative impact of financial performance (remember NetScreen?). In sum, the firm feels a premium is no longer justified and strategic risks are mounting. With its stock trading in the $19 range, JNPR is within a small margin of reaching CIBC's $20 price target. Given the above considerations they believe the stock is now fairly valued and are inclined to move to the sidelines.
Notablecalls: Looks like JNPR has the most to lose following the deal. I also have two high fives in store. First high five goes to ERIC's management for paying 7x annual revs for RBAK. That's pretty...high...guys. Second high five goes to financial advisors involved in the deal for ziplocked mouths as looking at the price action in RBAK stock couple of weeks ahead of yesterday's announcement it's pretty obvious there was a leak.
Arguably, the third high fives should go to RBAK management for selling their co for such a high price but it does just not fit the category. Well done guys! Really!
- UBS notes the proposed acquisition of RBAK is consistent with firm's view that ERIC is seeking to enhance its IP & IPTV offering with edge routing capability. Notes that RBAK has already secured 12 of the top 20 wireline carriers in the world for its IP edge routers.
RBAK has had little focus on wireless carries & this deal will likely enhance its position globally given ERIC's #1 share in wireless infrastructure. Firm alsos believe RBAK's competitive positioning against CSCO & JNPR in top tier wireline operators is further aided. RBAK's recent loss at VZ, which we believe was due to aggressive efforts by JNPR, likely accelerated RBAK's plans to seek a merger.
UBS ests ERIC is about 6%-8% of JNPR sales. They believe the edge router portion of these sales, which are mostly focused in China, will be at risk post the proposed merger as ERIC will likely seek to sell the RBAK product (primarily SmartEdge) over the JNPR product line in edge opportunities.
- CIBC is downgrading JNPR to SP from SO. While JNPR remains a formidable competitor in both edge and core routing, the firm now believes upside to the stock is limited given the more formidable edge competition of an RBAK/ERIC combination and waning possibility of an acquisition premium.
JNPR needs to decide - sell now or buy bigger and faster. The two possible matches include Motorola and Nokia Siemens. Yet, the first is busy with other acquisitions and (so far) indicated no desire for large acquisitions while the second is bogged down with delayed deal closing and integration.
Though they believe Juniper s relationship with Ericsson (reseller) will remain in place for some time given the breadth of Juniper s product portfolio relative to Redback, they think a decline in the volume generated through this channel is now inevitable. Reseller alliances with Motorola , Nortel or Avaya for example could build some lost traction; but they see less
synergy with those partners across strategies and product lines.
Alternatively, JNPR could turn more aggressive in consolidation. However, options are less compelling (access or enterprise) and are likely to have a negative impact of financial performance (remember NetScreen?). In sum, the firm feels a premium is no longer justified and strategic risks are mounting. With its stock trading in the $19 range, JNPR is within a small margin of reaching CIBC's $20 price target. Given the above considerations they believe the stock is now fairly valued and are inclined to move to the sidelines.
Notablecalls: Looks like JNPR has the most to lose following the deal. I also have two high fives in store. First high five goes to ERIC's management for paying 7x annual revs for RBAK. That's pretty...high...guys. Second high five goes to financial advisors involved in the deal for ziplocked mouths as looking at the price action in RBAK stock couple of weeks ahead of yesterday's announcement it's pretty obvious there was a leak.
Arguably, the third high fives should go to RBAK management for selling their co for such a high price but it does just not fit the category. Well done guys! Really!
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