Hewlett-Packard agrees to buy Aruba Networks for $2.7 billion

San Francisco: Hewlett-Packard Co. agreed to acquire Aruba Networks Inc., a maker of wireless-network infrastructure used by hotels, universities and shopping malls, for $2.7 billion in cash to bolster its networking business.

add_main_imageAruba investors will get $24.67 a share, the companies said on Monday in a statement. With debt and cash, the deal has a value of $3 billion.

This is the largest acquisition in several years for Hewlett-Packard, where chief executive officer Meg Whitman has been focused on cutting costs and returning the business to growth. Hewlett-Packard is planning to split itself in two later this year, with Whitman remaining in charge of the business focused on corporate customers.NextMAds

Given the pending split, a lower profit forecast and questions about its ability to adapt in a shifting corporate market, a multibillion-dollar purchase right may be risky. Yet Whitman might be targeting Wi-Fi networking-gear maker Aruba to tackle those very challenges, chasing revenue in a growing market and in China.

Aruba makes hardware and software used to build Wi-Fi networks for customers including China’s Dalian Wanda Group Co., which uses the technology in shopping malls. Other customers include California State University at Los Angeles and the Edzan Hotels & Suites in Qatar.

Annual sales

The company’s annual sales are projected to grow to more than $1 billion by fiscal 2017, the average of eight analysts’ estimates compiled by Bloomberg show, from $729 million in the year through July.

Buying Sunnyvale, California-based Aruba would bolster Hewlett-Packard’s networking business, which turned in sales of $562 million in the quarter that ended in January, an 11% decline from a year earlier. Aruba posted total sales of $207.8 million for the quarter that closed 31 October, representing growth of 29%.

Hewlett-Packard has also been in the enterprise wireless market, but has lost share in recent years. While it would still be far behind Cisco Systems Inc., which has almost 50% share, the combined company would have about 20% of the market, said Rich Valera, an analyst at Needham & Co. who recommends buying Aruba shares.sixthMAds

“Aruba’s been gaining share, and HP has been losing share,” Valera said last week before the deal was announced. “It’s at the leading edge, with really good products.”

Growth in China, traditionally a challenging market for western corporate-technology firms, may be another reason Hewlett-Packard is looking at Aruba. Hewlett-Packard already had to shuffle management at its Chinese networking company H3C Technologies Co. last year, and is said to be in talks to sell its majority stake in that business. Aruba would give Hewlett- Packard another inroad into the world’s second-largest economy, at a time when other companies are facing trouble there. Bloomberg