Hewlett Packard Enterprise’s (HPE) proposed acquisition of Juniper Networks is heading to the courts, with at least one expert calling the “unusual case” a toss-up.

The legal entanglement is being caused by a Department of Justice (DOJ) lawsuit to block the proposed $14 billion transaction. The DOJ’s move is focused heavily on HPE and Juniper’s current positions in the overall wireless LAN market, noting that a consolidation of the ecosystem’s No. 2 and No. 3 vendors would hurt market choice and innovation.

Jennifer Rie, senior litigation analyst for antitrust at Bloomberg Intelligence, said that the unusual aspect of the DOJ’s claim is that the consolidated market power is only anticompetitive when it’s combined with Cisco’s dominant position in the market.

Rie explained that the government uses the Herfindahl-Hirschman Index (HHI) to determine market concentration. If a proposed deal hits an HHI limit, it typically triggers a government review, which Rie noted is when a proposed deal could provide that combined entity with at least 30% market share.

However, analysts have noted that a combined HPE and Juniper would control less than 30% of the WLAN market, which is dominated by Cisco and its control of more than 40% of the market.

“You have an unusual situation here where you have the HHI that trigger this presumption, but it seems like the combined shares of the two companies are actually below 30% and that’s why I think it's close,” Rie said. “You have one piece in favor of the DOJ arguments against it, but one piece that suggests, well, how can a company that when combined is less than 30% exert enough market power that they could harm a market, especially when they've got this great, big competitor in Cisco. So I feel like this case, I feel like the DOJ had enough to bring the suit, because it did, based on their guidelines, trigger a presumption of harm.”

Cisco’s influence on HPE-Juniper Juniper CEO Rami Rahim has strongly rebuffed the DOJ’s assertion that a combined HPE and Juniper will upset the market.

“I think the DOJ is just wrong,” Rahim told SDxCentral. Rahim said that the DOJ is taking “a very narrow view of the transaction in the wireless LAN space” and concluding the deal will impede competition.

“Ultimately, even if you look at that wireless LAN space, it’s a very competitive market,” Rahim said. “I’ve been in the industry now for 30 years, practically all of that time at Juniper. I know how competitive the various different markets that we compete in are. Wireless LAN is one of the most competitive, with eight or nine different players. Any given opportunity that emerges … it’s not uncommon to see many different players that are competing for that opportunity.”

HPE in its detailed filing pointed specifically to the deal allowing it to be more competitive against market heavyweight Cisco and providing an international alternative to China-based vendor Huawei. HPE also highlighted a handful of “other credible competitors in the U.S., including Extreme, Arista, Fortinet, Ruckus, Ubiquiti, Nile, and Meter.”

Rie did note that arguments claiming a need for smaller rivals to combine in order to compete against larger rivals oftentimes fail to sway a result, pointing to a recent example of Kroger’s attempt to acquire Albertsons to better compete against Wal-Mart in the retail space that failed to gain approval. However, Rie added that HPE and Juniper might have a better argument due to current circumstances.

“I do think they have a little bit of a better argument in that sense here just because Cisco is so big and they are so small compared to Cisco,” Rie said. “And it's not prospective. It's not theoretical. This is clear. We know where Cisco's position is in the market and so I do think they have a stronger argument about coming together to better compete against the big No. 1 then companies have had in the past.”

HPE-Juniper customer concerns HPE and Juniper’s case might be bolstered by a seeming lack of customer dissention. Analysts have pointed to a spending freeze by some enterprises due to uncertainty over the deal, but Rie noted the overall outcry has been muted.

“I understand that there haven't been customer complaints,” Rie said. “The FTC [Federal Trade Commission] and DOJ tend to give a lot of weight. The first thing they do when they start to review a deal is to reach out to the customers. They ask the companies for their top 10 or top 20 customers and contact info, and they call them to ask what they think. And if those customers they’re very concerned about the product getting worse or prices going up, that's meaningful to them, so it should also be meaningful to them that the customers aren't worried.”

One of the loudest customer voices could be the same that is suing to stop the deal; the U.S. government. Questions have been raised over potential national security concerns over ongoing support of critical telecommunication technologies provided by both HPE and Juniper that are used by the U.S. government.

“If the government, whatever the agencies are, are customers, then the Department of Justice would have reached out to talk to them, so they will have a voice,” Rie said. “And if they are concerned about the security aspects, if there's some piece of the issue here that relates to security, the DOJ will learn, and that will be part of trial. It might end up being under seal, confidential, those who listen won't be able to hear those defenses, but it definitely may be part of it. If the government is a customer, the Department of Justice is talking to those agencies.”

Timing and what comes next The calendar is also adding pressure to the situation. The proposed deal was initially announced in early 2024, with a proposed closing by early this year.

However, terms of the deal allow Juniper to pull out of the agreement before its expected closing but doing so would require it to pay a $407.5 million termination fee to HPE. Juniper would also receive an $815 million termination fee should HPE not be able to close the deal by October 9.

Rie noted that HPE’s lawyers are asking for the court case to begin June 16, while the DOJ wants the case to begin on September 8, which is “absolutely not enough time to get through trial and to allow the judge to decide by October 9.”

That start will be significant to getting a better feel for how the case might be decided. Rie said the case will rely heavily on court testimony and documents provided during the trial, “and we don’t have any of that yet so much of the outcome depends on information that is not yet accessible to the public.”

“What I'll say here is that I think both sides right now have pretty good arguments,” Rie said. “The DOJ has a good position to filing the complaint, but I think the companies have some good defenses.”