HP Takes Out Aruba Networks in $2.7 Billion Mobile Technology Play

NEW YORK (The Deal) -- Shares of mobile networking technology group Aruba Networks (ARUN) pulled back in Monday morning trading on news of a $3 billion sale to Hewlett-Packard (HPQ). Not including the cash on the target's books, the price of the deal is $2.7 billion.

Aruba shareholders would receive $24.67 per share in cash, a discount to the stock's Friday close of $24.81.

HP chairwoman and CEO Meg Whitman said that the deal would create the "simplest" and "most secure" mobile networking technology offering for corporations. Aruba CEO Dominic Orr and chief strategy and technology officer Keerti Melkote will run the mobile networking unit.

Aruba is HP's largest deal since the company announced in October that it would split its enterprise and consumer businesses. The target generated about $730 million in 2014 sales. UBS projects that revenue will exceed $850 million in 2015.

When reports of a sale surfaced last week, Aruba stock rocketed to the mid-twenties. Investors' enthusiasm for a deal overshot the negotiated sale price.

Before the announcement, UBS analyst Amitabh Passi suggested in a report that the "sweet spot" for an Aruba takeout would fall between $25 to $30 per share.

Based on comparisons to Riverbed Technology (RVBD), F5 Networks (FFIV), Gigamon (GIMO), NetScout Systems (NTCT) and MobileIron (MOBL), Passi wrote, a valuation would fall between 3 to 4 times 2015 sales, or 10 to 12 times Ebitda. The range of sales multiples implies a range of $26 to $35 per share for Aruba, while the Ebitda valuations produce a stock price of $22 to $26.

The analyst suggested that Adtran (ADTN), Calix (CALX), Ciena (CIEN) and Juniper Networks (JNPR) could also be takeout candidates.

HP expects to close the purchase in the second half of its fiscal year, which concludes on Oct. 31, 2015.

Advising Aruba were Evercore bankers Stu Francis, Jeff Reisenberg, Fausto Borotto, Jackie Pangilinan, Anand Sankaralingam and Mark Wenden.

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