5. Juniper Networks
A long rumored large-cap deal play, Juniper Networks (JNPR - Get Report) may be a more likely acquirer than a takeover target, as information technology companies look to profit from virtualized servers, switches, routers, storage and security hardware.Juniper is second to Cisco (CSCO) in the networking-equipment industry, where it earns more than 60% of its revenue from phone, cable companies and Internet service providers. While the shares are off nearly 50% in the past year, the company may still be too big and offer too little value for a large acquirer. In January, Juniper posted a fourth-quarter profit that fell 49% from year-ago levels on weak router sales and it forecast a continued drop in the first quarter of 2012. Juniper shares are up nearly 5% year-to date, underperforming the S&P 500 as the company tries to recover from a 2011 stock swoon that put its shares near post-crisis lows. As far back as March 2009, UBS analysts noted that Oracle or Cisco could make a move for Juniper Networks among a range of 16 M&A targets for the two firms that included McAfee, Salesforce.com (CRM), TIBCO Software (TIBX) and VMware (VMW). Oracle has since cut large deals buying Sun Microsystems in 2010 for over $7 billion. In the last year, Larry Ellison set his sights on catching up in cloud-based services paying $1.5 billion and $1.9 billion for cloud business software companies RightNow and Taleo. Cisco cut its own deal earlier in February, when it bought optical network company Lightwire for $271 million. In an April 2010 article Bloomberg noted bankers and analysts who said that a Juniper-sized acquisition by IBM could add up to $3 billion in sales to "Big Blue" and plug a hole in its product offerings, especially in its cloud services and virtualization businesses. But in its 2015 roadmap, IBM is looking to spend just $20 billion on M&A to grow revenues by $2 billion as it returns roughly $50 billion in capital to shareholders via stock repurchases. So far, deals like its DemandTec and Algorithmics acquisitions and previous buys of Sterling Commerce, Netezza and Unica are midsized acquisitions targeted at the company's cloud, analytics and smarter planet initiatives. At a market cap of $12 billion and with a hardware bent, a Juniper deal would be IBM's largest deal since successfully transitioning to an IT services powerhouse. It makes Juniper likely beyond IBM's deal appetite. A bigger question may be whether Juniper Networks will double down on its networking virtualization business with a potential deal for Riverbed Technology (RVBD), Acme Packet (APKT) or Fortinet (FTNT), among other players, after a late-2011 $1 billion private equity buyout of networking specialist Bluecoat Systems. In November, Juniper senior vice president Mark Burrows indicated that the company would look to make further software acquisitions to round out its networking strategy. "You've certainly seen M&A activity in the software business and we'll certainly look for good opportunities in the future," said Burrows at a Morgan Stanley event, according to Bloomberg. While continued acquisitions by Juniper may prove timely in the long-term, they would likely disappoint some investors who may be hoping for a large deal in 2012. Analysts polled by Bloomberg have a 12-month median price target of $22.43 for Juniper, just higher than Monday's trading prices of $21.41. Earlier in March, Barclays Capital analyst James Kvaal upped his price target for Juniper to $26 a share from $24. The company is expected to see its revenue grow 1% to $4.5 billion, while profits are expected to drop nearly 25% to $341 million in 2012, according to consensus estimates. In recently quarterly filings Capital World sold 8 million Juniper shares, completing its liquidation of the company's stock after once being a big holder. Juniper's largest shareholder T. Rowe Price added to its position, putting it at nearly 14% or $1.57 billion, while Goldman Sachs upped its stake by roughly a third, as the company's largest buyer in the most recent quarter ended in December.