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Juniper-Netscreen richest deal since 2001

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CIOL Bureau
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LOS ANGELES: One of the richest technology mergers since the collapse of the market bubble shows the premium companies are willing to pay to secure their networks, said analysts.



Juniper Network's offer to acquire network security company NetScreen Technologies Inc. for more than $4 billion -- an initial premium of 56 percent -- highlights the price niche vendors may be able to command in a rising market, analysts said.



The combination of Juniper, the No. 2 maker of network gear, and NetScreen gives Juniper a shot at taking business from larger rival Cisco Systems Inc. NetScreen makes firewall and virtual private network systems that block intruders from corporate networks.



"The premium is on security. Strategically they don't have much choice," said Chris Byrnes, vice president of security practices at the META Group.



Analysts said the valuation was at the outer edge of what was reasonable.



"Given NetScreen's strong history of execution, 12 consecutive quarters of growth, and industry leading security portfolio, we consider a premium multiple may be warranted," Lehman Bros. analyst Tim Luke said in a note.



The prospective combination ranks as the biggest technology deal in about 8 months, since Oracle Corp. made its initial offer for PeopleSoft Inc., according to figures compiled by Thomson Financial.



If the Oracle deal, which was a tender offer as opposed to an agreed merger, is excluded, the Juniper-NetScreen deal ranks as the richest, in terms of the combination of price and premium, since December 2001's agreement between Conexant Systems Inc.'s wireless unit and Alpha Industries.



SECURITY IN FOCUS



"It doubles Juniper's end-market exposure," John Hancock Funds telecoms analyst Ryan Tansey said. "You have to compete with Cisco somehow."



The price of security cannot be underestimated, analysts say, given that corporations are finding themselves increasingly under attack by intruders and viruses.



Cisco spent more than $2 million for a Super Bowl commercial earlier this month to plug its security products, with an ad that depicted a little girl downloading a worm onto her father's computer at work.



"It becomes almost imperative that (networking companies) be able to provide secure network equipment," Byrnes said. "The M&A rate has been accelerating to the point where we're seeing a few acquisitions a month now.



"Security has been a growth area in technology during starvation years the last couple of years. Everybody saw it as small but growing," he added.



Others said the deal would increase the focus on NetScreen competitors like Check Point Software Technologies Inc., though they also cautioned that such companies could be impacted by downward pricing pressures.



Juniper shares shed 11 percent on Monday on the news, while NetScreen soared 36 percent. Both stocks were about 4.5 percent higher on Tuesday on Nasdaq, with Juniper shares closing at $27.36 and NetScreen finishing up at $37.57.



© Reuters

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