(Bloomberg) -- Hewlett-Packard Co. agreed to acquire Aruba Networks Inc., a maker of wireless-network infrastructure used by hotels, universities and shopping malls, for $2.7 billion in cash to bolster its networking business.
Aruba investors will get $24.67 a share, the companies said Monday in a statement. Including debt and cash, the deal has a value of $3 billion.
Aruba shares fell less than 1 percent to $24.65 at the close in New York. The stock climbed 21 percent Wednesday after Bloomberg News reported that Hewlett-Packard was considering the acquisition. The shares kept rising in the following days and ended the week at $24.81 a share, more than the eventual offer price. Hewlett-Packard rose less than 1 percent to $34.92 Monday.
This is the largest acquisition in several years for Hewlett-Packard, where Chief Executive Officer Meg Whitman has been focused on cutting costs and returning the business to growth. Hewlett-Packard is planning to split in two later this year, with Whitman remaining in charge of the business focused on corporate customers.
“The world continues to move quickly and HP needs to move with focus,” said Bill Kreher, an analyst at Edward Jones & Co., who has a hold rating on the stock. “The company has to rely on prudent acquisitions to buy as opposed to build their presence.”
Given the pending split, a lower profit forecast and questions about its ability to adapt in a shifting corporate market, a multibillion-dollar purchase right may be risky. Yet Whitman might be targeting Wi-Fi networking-gear maker Aruba to tackle those very challenges, chasing revenue in a growing market and in China.
Aruba makes hardware and software used to build Wi-Fi networks for customers including China’s Dalian Wanda Group Co., which uses the technology in shopping malls. Other customers include California State University at Los Angeles and the Edzan Hotels & Suites in Qatar.
Aruba’s annual sales are projected to grow to more than $1 billion by fiscal 2017, the average of eight analysts’ estimates compiled by Bloomberg show, from $729 million in the year through July.
Buying Sunnyvale, California-based Aruba would bolster Hewlett-Packard’s networking business, which turned in sales of $562 million in the quarter that ended in January, an 11 percent decline from a year earlier. Aruba posted total sales of $207.8 million for the quarter that closed Oct. 31, representing growth of 29 percent.
“HP wants to have greater exposure in networking,” Kreher said. “This is an area that exhibited noticeable weakness last quarter following relative strength in recent years.”
Hewlett-Packard has also been in the enterprise wireless market, but has lost share in recent years. While it would still be far behind Cisco Systems Inc., which has almost 50 percent share, the combined company would have about 20 percent of the market, said Rich Valera, an analyst at Needham & Co. who recommends buying Aruba shares.
“Aruba’s been gaining share, and HP has been losing share,” Valera said last week before the deal was announced. “It’s at the leading edge, with really good products.”
Growth in China, traditionally a challenging market for Western corporate-technology firms, may be another reason Hewlett-Packard is looking at Aruba. Hewlett-Packard already had to shuffle management at its Chinese networking company H3C Technologies Co. last year, and is said to be in talks to sell its majority stake in that business. Aruba would give Hewlett-Packard another inroad into the world’s second-largest economy, at a time when other companies are facing trouble there. Evercore Partners Inc. served as a financial adviser to Aruba for the deal.
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