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Jumpiní Juniper -- $4 billion for NetScreen

February 18

In the biggest deal ever for homeland security, Juniper Networks (JNPR) announced that it will acquire NetScreen Technologies (NSCN), in a stock-for-stock merger valued at over $4 billion.

Putting aside its giant size, the deal is also remarkably high-priced: before the announcement, NetScreen had enjoyed a lofty market cap of $2.4 billion on 2003 revenues of only $275 million with an operating ROS of about 16%. So starting from a NetScreen market cap of 10x revenue, Juniper is further goosing the race into the stratosphere by paying a 67% premium, or a value of 15x NetScreenís 2003 revenue.

Not to belabor the point, thatís 93x operating ROS. Well, give Juniper a break: NetScreen also carries excess cash, about $380 million on the balance sheet, though thatís not a material factor considering the scale of the deal.

More important, Juniperís own market cap is also trading at rarified levels -- about 15x last yearís sales despite a little softening in the stockís price since the deal was announced. (That softening would be no surprise.).

So look at it this way: Juniper is buying NetScreen at the same hyper-value that its own stock enjoys. Who said weíll never see Year 2000 tech stock values again? Welcome to what walks and talks like another bubble.

Both Juniper and NetScreen focus on security and networking hardware and count the federal government as their biggest client. This fact may explain the marketís enthusiasm for their stock

Also, as Tech Dealmaker points out, both companies battle over market share against a near-identical list of competitors. So the deal gives Juniper a leg-up in challenging chief competitor Cisco and, according to Juniper CEO Scott Kriens, doubles Juniper's addressable market to $10 billion.

As weíve mentioned in a prior Dispatch and news blurbs, the tech security sector has been seeing a rapidly rising deal pace and enterprise values, as much as 50% in 2003. Network security firms Network Associates and Symantec have also made recent major acquisitions in the past year.


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