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Why Juniper Jumped?
As we reported in last monthís M&A Roundup, in the biggest deal ever for homeland security, Juniper Networks (JNPR) announced that it would acquire NetScreen Technologies (NSCN), in a stock-for-stock deal worth over $4B.
This struck us as remarkably high-priced: before the announcement, NetScreen had enjoyed a lofty market cap of $2.4B on 2003 revenues of only $275M with an operating ROS of about 16%. So starting from a NetScreen market cap of 10x revenue, Juniper paid a 67% premium, or a value of 15 times NetScreenís 2003 revenue.
A recent Wall Street Journal article, "The 'I Must Do a Deal' BonusíĒ, questions whether incentive structures created by Juniperís board may have played a role in the outsized valuation paid. According to the article, Juniperís board gave the companyís CEO, Scott Kriens, a directive to acquire or else. No acquisition, no management team bonuses.
Well, the board got what it asked for, Juniperís management team sure earned its bonuses, and lots of NetScreen shareholders cashed out big time. But we wonder if one day Juniperís shareholders will get stuck with the bill for the party.
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