Hewlett Packard Enterprise’s (HPE) pending acquisition of Juniper Networks has been upended by a Department of Justice (DOJ) lawsuit, a hurdle analysts note could lead to divestiture requests that might shine a financial spotlight on Juniper’s Mist operations.

The DOJ lawsuit specifically points to 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. HPE, in a filing response, strongly rebuked that notion.

“Contrary to the complaint’s assertion, this transaction is not about HPE acquiring a ‘WLAN company,’” HPE wrote. “There is not a single HPE board document or public statement to investors about the transaction supporting this assertion.

“While WLAN is a component of the overall transaction, it is misleading to suggest that HPE is spending roughly $14 billion to acquire Juniper for the purpose of insulating itself from WLAN competition in the United States, particularly when the WLAN solutions that are the focus of the complaint comprise only 11% of Juniper’s revenue. There are simpler – and significantly cheaper – alternatives for HPE to acquire a single-digit market share in the United States in WLAN if that was its primary goal.”

Instead, HPE argued that the “primary goal of this transaction is to bring together Juniper’s data center routing and switching business with HPE’s storage and compute offering, spurring increased competition and innovation across the networking segment.” HPE pointed specifically to being more competitive against market heavyweight Cisco and providing an international alternative to China-based vendor Huawei.

However, Jennifer Rie, senior litigation analyst for antitrust at Bloomberg Intelligence, said she is currently questioning HPE’s argument.

“They haven't offered to divest anything, and if this deal isn't just about acquiring Juniper’s Mist, then offer to divest either Aruba or Mist. They haven't done that,” Rie said. “To me, maybe, they could get this all cleared up if they offer to divest one or the other and get this closed, but they haven’t, and so far it doesn't seem like they have a plan to. Maybe they will down the road.”

Does divesting Mist make sense for HPE?

If the DOJ remains fixated on the WLAN space, Juniper’s Mist platform could be a casualty.

Rie’s colleague Woo Jin Ho, who is a senior industry analyst at Bloomberg Intelligence, pointed to the Mist platform as potentially being the “biggest bone of contention” in holding up the deal.

“HPE needs a data center switching business, a good one, and there aren't many out there,” Ho said. “If we go down the line of the data center switching and routing businesses, the options are few and far between.”

Ho pointed to Cisco, Nokia, and Juniper in the routing space, and for virtual routers, “which HPE is trying to get into, maybe they could acquire someone like DriveNets or someone along those lines. But that’s more complimentary than anything else.”

“But if you look at data center switching, you’ve got [Juniper’s] PTX product and the QFX products,” Ho said. “We've read through Juniper’s last earnings report, and essentially what they're saying is that the cloud business grew 200%. They can go, ‘you know, there's value in that,’ especially when HPE is trying to drive server sales and their storage sales, especially in this era of AI.”

Would a de-Mist-ified Juniper still be of interest to HPE? Many think so.

“A Juniper deal without the Wi-Fi business still has merit for HPE, we believe, as it fills a big void in its enterprise data center unit, and could complement its AI, traditional server, and storage divisions,” Ho noted in a report. “Juniper only has 3- 4% share in a $22 billion market yet has made inroads with tier-two cloud providers, which was illustrated by its 44% data-center sales growth in [third quarter] results and was paired with 30% growth in cloud sales and triple-digit improvement in cloud orders.”

Ho predicted that “our back-of-the-envelope adjusted valuation for the rest of the company could be $10-$11 billion.”

What happens to Mist?

HPE going that route could spike interest for an emancipated Mist business.

Juniper initially acquired Mist Systems in 2019 for $405 million. Ho’s calculations put Mist’s new valuation at close to $4 billion. That business has been a focal point of growth at Juniper.

Gartner last year lauded Mist in ranking Juniper as a leader among enterprise wired and WLAN infrastructure providers.

“Juniper’s client base is globally diverse, with particular focus on the general enterprise market, as well as retail, education, government and health care,” Gartner’s report notes. “The company continues to invest in integrated AI and ML [machine learning] operations, as well as cloud-based security capabilities. Gartner expects that Juniper will invest in genAI integration for enhanced capabilities in its natural language processing interface.”

That base was also highlighted by Dell’Oro Group, which also cited Juniper as a leader in the WLAN space.

“I think that Mist is really resonating, that’s what I’m hearing in the market,” Dell’Oro Group Research Director Siân Morgan said in an interview with SDxCentral. “Enterprises are finding the solution very compelling. They’ve done a great job marketing it as well in terms of the functionality. They’ve had some great customers come forward and say how it’s revolutionized their business.”

Ho said that a standalone Mist would garner considerable attention.

“You have to put a high number on a Mist deal because if that's the holy grail and HPE really wants that part of the business, it's going to open everyone else's eyes to why HPE is fighting tooth and nail for this business,” Ho said. “There must be something in there.”

And that interest could come from a number of rivals.

“It's clear that the network security guys are trying to get into the networking business, and they all want to be some sort of platform business similar to what Palo Alto is touting, but they don't have a strong networking presence,” Ho said. “There are going to be buyers who come for the Mist business if it’s an option on the table.”

Would HPE entertain a Mist divestiture to close the Juniper deal? That’s the multi-billion-dollar question.

“My sense would be that HPE would still like to go through with this, and then it’s a question that they may have to be subject to some conditions, and they have to decide whether or not they're amenable to that,” added Dave Novosel, senior analyst at corporate bond analyst firm GimmeCredit.