HP to Buy Aruba Networks for $2.7B

PALO ALTO, Calif. (San Jose Mercury News/TNS) -

Hewlett-Packard sought to shore up its struggling networking business Monday with the acquisition of one of Silicon Valley’s top wireless networking companies, Aruba Networks, in the largest purchase since Meg Whitman took over as CEO.

Hewlett-Packard agreed to pay $24.67 a share, a price that values Sunnyvale-based Aruba at roughly $3 billion; HP will pay about $2.7 billion after factoring in cash Aruba brings to the combination. The deal is the largest for HP since the Palo Alto tech giant acquired British enterprise-software company Autonomy for $11 billion in 2011, a deal that HP later said was the result of accounting fraud on the part of Autonomy.

After the company disappointed Wall Street with its earnings reports last week, Whitman pointed to HP’s networking segment as a weak link that hurt the company’s revenues overall. Now, with HP preparing to split in two, she bolsters that division with a wireless-networking firm that brought in more than $800 million last year.

“Enterprises are facing a mobile-first world and are looking for solutions that help them transition legacy investments to the new style of IT,” Whitman said in Monday’s announcement. “By combining Aruba’s world-class wireless mobility solutions with HP’s leading switching portfolio, HP will offer the simplest, most secure networking solutions to help enterprises easily deploy next-generation mobile networks.”

HP’s revenues from its sales to businesses declined year-over-year in the fourth quarter, spooking investors who wanted to see more strength heading into a corporate cleaving that will produce a new company focused solely on enterprise sales.

“In our opinion, this transaction speaks to HP’s attempt to position its product portfolio in strong growth areas ahead of the planned split of its PC/printing business and technology services business,” FBR Capital Markets analyst Daniel Ives said.

HP has avoided such large acquisitions since Whitman became CEO after the Autonomy misstep, though this is the second purchase of 2015, after HP bought Cupertino’s Voltage Security for an undisclosed amount last month.

Aruba Networks, which was founded in 2002, has continued to grow its business as companies deal with the explosion of mobile devices connecting to their networks, while facing competition from networking leader Cisco as well as wi-fi-focused competitors such as Ruckus Wireless. Aruba revenues gained 27.4 percent last year, from $637.5 million in 2013 to $812.4 million; its 2013 total made it No. 70 on the SV150 list of the largest tech companies in the Bay Area based on sales.

“Together with HP, we have a tremendous opportunity to become an even greater force in enterprise mobility and networking,” Aruba CEO Dominic Orr said in Monday’s announcement.

Aruba has the second-largest market share in wireless networking, behind Cisco, according to a November analysis from IDC. Cisco had nearly half the market, at 48.3 percent, while Aruba’s share was 11.5 percent; Ruckus, also based in Sunnyvale, was third with 6.3 percent.

HP expects the deal to close in the second half of its 2015 fiscal year, which completed its first quarter on Jan. 31. The boards of directors for both companies have approved the acquisition.