HP to Acquire Aruba Networks to Create an Industry Leader in Enterprise Mobility

Hewlett-Packard Co. (NYSE: HPQ) announced Monday morning that it will acquire Aruba Networks Inc. (NASDAQ: ARUN) for the sum of $2.7 billion in cash. Just last week this was only in the rumor mill, but when it leaked that the companies were in talks, Aruba shares jumped by 21% in Wednesday’s trading session.

This broke down for Aruba investors to the tune of $24.67 per share for the acquisition. According to Bloomberg, with debt and cash, the total deal is valued at $3 billion.

Aruba offers access points that deliver secure Wi-Fi client access to indoor and outdoor enterprise wireless local area network environments, as well as mobility controllers, which manage wired and wireless access across multiple locations.

Notably, this would be the largest acquisition by HP for at least the past few years. The intent of this acquisition is to grow HP’s market share in networking and wireless markets, where it has struggled. This appears to be an opportunistic acquisition for HP as well.

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The HP’s fiscal first-quarter segment results were:

  • Personal Systems revenue was flat from the previous year at $8.54 billion, with an operating margin of 3.7%.
  • Printing revenue was down 5% year over year to $5.54 billion, with a 19.2% operating margin.
  • Enterprise Group revenue was flat at $6.98 billion, with a 15.6% operating margin.
  • Enterprise Services revenue was down 11% at $4.99 billion, with a 3.0% operating margin.
  • Software revenue was down 5% at $871 million, with an operating margin of 18.0%.
  • HP Financial Services revenue was down 8% at $803 million, with an operating margin of 11.2%.

In Aruba’s 2014 fiscal year, the company reported revenues of $728.93 million, and there are consensus estimates for the 2015 fiscal year of $862.02 million.

For comparison sake, HP has a market cap near $64 billion and Aruba has a market cap of $2.6 billion.

It is worth mentioning that HP will separate into two new publicly traded companies: Hewlett-Packard Enterprise and HP Inc. The transaction, which will be effected in a tax-free distribution of shares to stockholders, is expected to be completed by the end of 2015.

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Shares of HP were up 0.2% at $34.92 in the first half of Monday’s trading session. The stock has a consensus analyst price target of $40.63 and a 52-week trading range of $28.75 to $41.10.

Shares of Aruba were down 1.5% at $24.44. The consensus analyst price target is $25.00, and the 52-week trading range is $15.65 to $24.97.