The Department of Justice has filed a lawsuit to block Hewlett Packard Enterprise from purchasing smaller rival Juniper Networks.
HPE announced in January 2024 that it had reached an agreement to purchase Juniper Networks in an all-cash transaction worth roughly $14 billion. Juniper specializes in AI-native networks, making it an appealing takeover target for HPE, as HPE made clear at the time of the announcement:
Through its suite of cloud-delivered networking solutions, software, and services including the Mist AI and Cloud platform, Juniper helps organizations securely and efficiently access the mission-critical cloud infrastructure that serves as the foundation of digital and AI strategies. The combination with HPE Aruba Networking and purposely designed HPE AI interconnect fabric will bring together enterprise reach, and cloud-native and AI-native management and control, to create a premier industry player that will accelerate innovation to deliver further modernized networking optimized for hybrid cloud and AI.
Unfortunately for the two companies, the DOJ has filed a suit to block the acquisition, saying it will reduce competition in the network hardware space.
The United States of America brings this civil action to prevent Hewlett Packard Enterprise Company (“HPE”) from acquiring a smaller, but innovative rival, Juniper Networks, Inc. (“Juniper”). HPE and Juniper are the second- and third-largest providers of commercial or “enterprise” wireless networking solutions, respectively, in the United States. The acquisition, if consummated, would result in two companies—market leader Cisco Systems, Inc. (“Cisco”) and HPE—controlling well over 70 percent of the U.S. market and eliminate fierce head-to-head competition between Defendants, who offer wireless networking solutions under the HPE Aruba and Juniper Mist brands.
The DOJ goes on to say that Juniper forced HPE to discount its prices, and that HPE only wants to purchase the small company because it cannot compete on merit.
For years, 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 “Beat Mist” campaign failed. Having failed to beat Juniper’s Mist on the merits, HPE seeks to acquire Juniper instead for $14 billion. This proposed acquisition risks substantially lessening competition in a critically important technology market and thus poses the precise threat that the Clayton Act was enacted to prevent. It should be blocked.
A Presumptively Unlawful Merger
The suit goes on to make the case that the merger is “presumptively unlawful,” since it would reduce competition and increase consolidation within the market.
The proposed merger is presumptively unlawful. It would significantly increase concentration in an already consolidated relevant market for enterprise-grade WLAN solutions. The proposed acquisition would result in two firms controlling over 70 percent of the relevant market.
To measure market concentration, courts often use the Herfindahl-Hirschman Index (“HHI”) as described in Section 2.1 of the 2023 Merger Guidelines. See United States Department of Justice and Federal Trade Commission, Merger Guidelines (2023 ed.) § 2.1. HHIs range from 0 in markets with no concentration to 10,000 in markets where one firm has 100 percent market share. Under the Merger Guidelines, a market with HHI greater than 1,800 is highly concentrated, and a change of more than 100 points is a significant increase. See Fed. Trade Comm’n v. Kroger Co., No. 3:24-cv- 00347, 2024 WL 5053016, at 15 (D. Or. Dec. 10, 2024). A merger that creates or further consolidates a highly concentrated market that involves an increase in the HHI of more than 100 points is presumed to substantially lessen competition and is presumptively unlawful. See id. at 15 (citing U.S. Dep’t of Justice & Fed. Trade Commission, Merger Guidelines § 2.1 (2023)).
The proposed merger between HPE and Juniper easily clears these hurdles in the markets for enterprise-grade WLAN solutions and is presumptively unlawful, with a pre-merger HHI over 3,000 and a change of at least 250 points using IDC’s estimates of U.S. market shares for wireless access points. Cisco and Defendants’ shares of the U.S. enterprise-grade WLAN market are roughly in line with their shares of the U.S. market for access points alone.
A Merger Would Hurt the Market
The DOJ maintains that a merger between the two companies would hurt the market in a way that could not be easily offset. This is due to the high barrier to entry any company looking to enter the market would face.
Entry by new vendors of enterprise-grade WLAN in response to the merger would not be timely, likely, or sufficient to offset the anticompetitive effects of the proposed merger of HPE and Juniper. It takes years and significant financial investment for a vendor to design and procure hardware components for a WLAN portfolio; create a management platform that incorporates tools that streamline and automate network maintenance; build a sales and support organization; and recruit value-added resellers and other distribution partners that procure and install equipment for WLAN customers.
The DOJ also believes that any proposed “synergies” of the merger are doubtful to live up to the hype.
Defendants have claimed that the proposed acquisition would generate synergies by combining operations and removing duplication in the companies’ sales, administrative, and other organizations. But HPE’s own executives—and several of HPE’s competitors—have expressed doubts about HPE’s ability to successfully integrate Juniper’s products into its networking portfolio. Regardless, to the extent the proposed transaction would result in any verifiable, merger-specific efficiencies in the relevant market, such efficiencies are unlikely to be timely or substantial enough to mitigate the risk to competition posed by the transaction.
Conclusion
The Trump administration has promised to crack down on Big Tech, vocally criticizing the influence tech companies have. Reuters reports that HPE representatives met with the Trump administration, but clearly those meetings were not productive enough to prevent the lawsuit.
The DOJ’s legal action could portend what’s to come for Big Tech companies and their future merger attempts.
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