WEBVTT 1 00:00:08.025 --> 00:00:10.895 Hello and welcome to this Vidcast, which is devoted 2 00:00:10.955 --> 00:00:13.935 to the acquisition of Juniper Networks 3 00:00:14.155 --> 00:00:18.015 by Hewlett Packard Enterprise by HPE. 4 00:00:19.745 --> 00:00:21.455 First, let's start with a little bit 5 00:00:21.455 --> 00:00:22.975 of historical background. 6 00:00:24.005 --> 00:00:27.455 Once upon a time in the seventies in Palo Alto, 7 00:00:28.305 --> 00:00:31.535 there is a creation of the Palo Alto Research Center, 8 00:00:31.875 --> 00:00:35.735 but it comes from a little bit earlier, a a few years 9 00:00:35.915 --> 00:00:39.615 before a person invented a technology thanks 10 00:00:39.615 --> 00:00:42.615 to which you can replace a classical photo copier by 11 00:00:43.235 --> 00:00:44.295 dry writing. 12 00:00:45.275 --> 00:00:48.175 The patent is offered to Kodak, to Eastman Kodak, 13 00:00:48.175 --> 00:00:49.335 and to IBM. 14 00:00:49.335 --> 00:00:52.215 They're going to refuse following the very well known 15 00:00:52.215 --> 00:00:54.575 principle of not invented here. 16 00:00:55.775 --> 00:00:58.335 I did not invent, so it's not good. 17 00:00:59.315 --> 00:01:02.255 The company whose name is Helo Corporation based in 18 00:01:02.255 --> 00:01:05.295 Rochester, New York Bay, is always the same town as Eastman. 19 00:01:05.575 --> 00:01:08.135 Kodak is going to buy the patent. 20 00:01:08.275 --> 00:01:09.855 The CEO is going to bet the future 21 00:01:09.915 --> 00:01:11.455 of the company on the patent, 22 00:01:11.755 --> 00:01:14.175 and it's going to become Xerox. 23 00:01:14.715 --> 00:01:16.695 It comes from ancient Greek. 24 00:01:17.565 --> 00:01:21.375 Zero graph means dry writing, something like that. 25 00:01:22.035 --> 00:01:25.015 The company is going to experience a monopolistic situation 26 00:01:25.015 --> 00:01:28.095 during a few years and it's going to make a lot of money. 27 00:01:28.715 --> 00:01:31.895 But the problem is one day the patent will expire. 28 00:01:32.075 --> 00:01:34.015 And what about next? 29 00:01:34.965 --> 00:01:38.415 Next, you will have to offer new innovative product to 30 00:01:39.135 --> 00:01:42.415 customers, and this is why the Palo Alto Research Center is 31 00:01:42.415 --> 00:01:43.775 created by Xerox. 32 00:01:43.995 --> 00:01:47.615 In order to develop innovations, there will be up 33 00:01:47.615 --> 00:01:50.695 to 5,000 researchers in a kind 34 00:01:50.695 --> 00:01:54.015 of freedom in this very well-known 35 00:01:54.325 --> 00:01:56.815 institution at that time. 36 00:01:57.145 --> 00:02:00.375 Xerox is generating a 60% gross margin, 37 00:02:00.375 --> 00:02:03.895 which is absolutely huge, a very significant part of that. 38 00:02:03.895 --> 00:02:05.895 It's going to be invested in research 39 00:02:06.195 --> 00:02:08.735 and development, Palo Alto Research Center. 40 00:02:09.715 --> 00:02:12.415 Now, they are going to develop plenty of technologies, 41 00:02:12.675 --> 00:02:15.535 for example, local Hart Networks, ethernet 42 00:02:15.555 --> 00:02:17.295 and so on, so forth, and they're going 43 00:02:17.295 --> 00:02:20.695 to develop the laser printers, which are going to more 44 00:02:20.695 --> 00:02:23.735 or less replace the photocopiers in their top line, 45 00:02:23.735 --> 00:02:25.815 inner the revenues of Xerox. 46 00:02:27.475 --> 00:02:31.135 So there will be plenty of innovations coming from the park, 47 00:02:32.035 --> 00:02:35.375 but Fortune Magazine published an article in the eighties 48 00:02:35.395 --> 00:02:38.975 who started, was a lab that ran away from Xerox. 49 00:02:40.265 --> 00:02:43.615 Xerox was Helo Corporation based in Rochester, New York. 50 00:02:43.615 --> 00:02:45.815 They're going to move the head office from Rochester 51 00:02:45.815 --> 00:02:47.695 to Stanford, Connecticut, 52 00:02:47.995 --> 00:02:50.015 but from east coast to east coast, 53 00:02:50.725 --> 00:02:52.375 Palo Alto is in California. 54 00:02:52.805 --> 00:02:56.335 It's a west coast, and there is a very important cultural 55 00:02:56.975 --> 00:02:59.925 misunderstanding between the east coast and the west coast. 56 00:03:00.385 --> 00:03:02.045 The communication between r and d 57 00:03:02.045 --> 00:03:04.085 and marketing is going to be a disaster 58 00:03:04.585 --> 00:03:06.245 for the marketing experts. 59 00:03:06.585 --> 00:03:09.485 All these innovations are kind of gimmicks, 60 00:03:09.835 --> 00:03:12.565 including the very famous mouse which was 61 00:03:12.565 --> 00:03:14.005 created in the park. 62 00:03:14.435 --> 00:03:16.485 When the marketing experts saw the mouse, 63 00:03:16.485 --> 00:03:18.165 it says there is absolutely no future. 64 00:03:18.705 --> 00:03:21.965 The arrow keys in the computer, it's much better Now 65 00:03:22.025 --> 00:03:24.685 as a consequence of the relationship between Xerox 66 00:03:24.685 --> 00:03:27.765 and Apple, Steve Jobs is allowed to do a kind 67 00:03:27.765 --> 00:03:30.965 of shopping in the park and is going to buy 68 00:03:31.065 --> 00:03:32.525 and integrate the mouse 69 00:03:32.635 --> 00:03:35.765 with a wig graphical interface, et cetera, et cetera. 70 00:03:36.105 --> 00:03:39.325 So these innovations created by Xerox are going 71 00:03:39.325 --> 00:03:42.765 to be developed in the product sold by Apple. 72 00:03:43.175 --> 00:03:45.125 These innovations are going to get out 73 00:03:45.125 --> 00:03:46.245 of the research center, 74 00:03:46.705 --> 00:03:48.565 but the researchers themselves are going 75 00:03:48.565 --> 00:03:50.085 to be quite frustrated by the process. 76 00:03:50.155 --> 00:03:51.405 They're going to go out 77 00:03:51.505 --> 00:03:54.205 and they are going to create their own startups 78 00:03:54.455 --> 00:03:56.805 among the researchers who left the park 79 00:03:56.865 --> 00:03:58.165 to create their own companies. 80 00:03:58.265 --> 00:04:00.725 As an Indian person whose name is Pip Sindu, 81 00:04:01.395 --> 00:04:04.045 he's a very well known scientist, very experienced one. 82 00:04:04.505 --> 00:04:06.805 He spent 11 years in the park 83 00:04:07.265 --> 00:04:09.845 and he's an expert in telecommunications equipment. 84 00:04:10.425 --> 00:04:13.045 In 1996, he leaves Park 85 00:04:13.265 --> 00:04:16.165 to create a company whose name is Juniper Networks. 86 00:04:17.025 --> 00:04:20.725 Now he's a great scientist, but technology is not enough. 87 00:04:21.065 --> 00:04:23.925 You need a manager and Crosspoint Venture Partners. 88 00:04:23.925 --> 00:04:26.685 He's going to hire Scott Green, who is going 89 00:04:26.685 --> 00:04:30.645 to be the CEO from 1996 to 2008. 90 00:04:31.275 --> 00:04:33.645 Then it will step back as a CEO, 91 00:04:33.665 --> 00:04:35.485 but remain chairman of the board. 92 00:04:35.625 --> 00:04:37.485 The person who really contributed 93 00:04:37.505 --> 00:04:39.085 to the fantastic development 94 00:04:39.085 --> 00:04:43.485 of gene repair networks in the early years is Scott Cranes. 95 00:04:43.665 --> 00:04:46.805 Now we are in the nineties, second half of the nineties, 96 00:04:46.825 --> 00:04:48.125 and these are the golden years 97 00:04:48.185 --> 00:04:51.325 for the telecommunication equipment industry. 98 00:04:52.405 --> 00:04:55.885 A very well-known Canadian company, Northern Telecom, 99 00:04:56.065 --> 00:04:59.165 Nortel Networks, whose end is going to be 100 00:04:59.685 --> 00:05:03.765 absolutely terrible is selling telecom equipment to 90% 101 00:05:03.765 --> 00:05:07.285 of the Fortune 500 companies loosened. 102 00:05:07.865 --> 00:05:10.965 The telecom equipment activity within at 103 00:05:10.985 --> 00:05:14.405 and t is going to be spun off in 1996 104 00:05:14.785 --> 00:05:17.325 to start its life by itself. 105 00:05:18.125 --> 00:05:21.165 ENT will merge with Alcatel in 2006 106 00:05:21.225 --> 00:05:26.045 and Alcatel ENT is going to be acquired by Nokia in 2016. 107 00:05:27.255 --> 00:05:30.245 Nokia is so well known for the very famous 108 00:05:30.845 --> 00:05:32.925 terminal right in the mobile business. 109 00:05:33.365 --> 00:05:35.925 Ericsson is also a very big player. 110 00:05:36.355 --> 00:05:38.925 They are going to invent the Bluetooth technology, 111 00:05:39.305 --> 00:05:43.205 but in this industry, the number one is definitely Cisco. 112 00:05:44.105 --> 00:05:47.525 In March, 2000, Cisco is going to be the largest 113 00:05:48.075 --> 00:05:50.645 worldwide capitalization of stock market 114 00:05:50.665 --> 00:05:52.005 during three months, 115 00:05:52.385 --> 00:05:56.765 and the value of the company at that time is $500 billion, 116 00:05:57.335 --> 00:05:59.365 which is absolutely outstanding. 117 00:05:59.705 --> 00:06:01.365 20 something years ago. 118 00:06:01.585 --> 00:06:05.565 The second half of the nineties is the explosion 119 00:06:05.565 --> 00:06:07.125 of telecommunication equipment, 120 00:06:07.345 --> 00:06:10.045 but it is a creation of the internet bubble. 121 00:06:10.275 --> 00:06:11.765 So-called Internet bubble. 122 00:06:12.705 --> 00:06:15.245 If you look back in 95, 123 00:06:15.585 --> 00:06:19.005 the NASDAQ is about 600, 700. 124 00:06:19.635 --> 00:06:22.765 It's going to go up to 4,500 125 00:06:22.905 --> 00:06:25.485 and more in March, 2000, 126 00:06:25.545 --> 00:06:28.605 and then it's going to dramatically go down. 127 00:06:28.605 --> 00:06:32.885 The Nasdaq is going to lose two thirds of its value back 128 00:06:32.885 --> 00:06:34.525 to 1,500. 129 00:06:35.095 --> 00:06:38.205 Today, NASDAQ is not back to 4,000 and something. 130 00:06:38.335 --> 00:06:40.925 Today NASDAQ is 16,000. 131 00:06:41.305 --> 00:06:44.005 So the tech business is doing quite well. 132 00:06:44.115 --> 00:06:46.685 What about the business of Juniper Networks? 133 00:06:47.675 --> 00:06:49.765 Juniper is a Cisco killer. 134 00:06:50.435 --> 00:06:51.885 They are plenty of competitors 135 00:06:51.885 --> 00:06:56.045 and they all are supposed to be challenges of Cisco, 136 00:06:56.185 --> 00:06:59.525 the number one, and there's a technological advantage 137 00:06:59.705 --> 00:07:02.725 for Juniper because the software is embedded 138 00:07:03.265 --> 00:07:06.045 in the hardware, which is not the case of Cisco. 139 00:07:06.505 --> 00:07:09.445 If you want to buy the equipment at Cisco, the router, 140 00:07:09.625 --> 00:07:11.165 you have to buy the hardware 141 00:07:11.345 --> 00:07:12.845 and you have to integrate the software. 142 00:07:13.075 --> 00:07:14.965 It's already done by Juniper. 143 00:07:15.155 --> 00:07:16.725 This is a technological advantage, 144 00:07:17.305 --> 00:07:21.245 but Cisco has a much broader product range to offer 145 00:07:21.265 --> 00:07:24.205 to the customers, which is a business advantage, 146 00:07:24.545 --> 00:07:26.085 an outstanding business advantage. 147 00:07:26.465 --> 00:07:27.485 So on the one side, 148 00:07:27.485 --> 00:07:30.845 you have outstanding scientific performance for Juniper 149 00:07:31.305 --> 00:07:35.525 and very big business offer for Cisco. 150 00:07:36.425 --> 00:07:39.125 What's going to be absolutely outstanding in the development 151 00:07:39.125 --> 00:07:41.365 of Juniper is revenues. 152 00:07:41.625 --> 00:07:46.485 The company is created in 19 96, 8 years later in 2004, 153 00:07:46.785 --> 00:07:49.765 the company's generating 4 billion euros 154 00:07:49.765 --> 00:07:52.005 of turnover starting from scratch. 155 00:07:52.255 --> 00:07:54.805 Eight years before, just to give you an idea, 156 00:07:55.135 --> 00:07:58.565 apple took 11 euros to move from zero 157 00:07:58.985 --> 00:08:01.125 to $4 billion of revenues. 158 00:08:01.345 --> 00:08:03.605 It gives you an idea about the quality 159 00:08:03.705 --> 00:08:05.005 of the business development. 160 00:08:05.265 --> 00:08:08.485 Now in terms of market share, for the core routers, 161 00:08:08.945 --> 00:08:13.125 the business in which Cisco is a leader in 2001, 162 00:08:13.145 --> 00:08:16.365 the market share of Juniper is 37%. 163 00:08:16.705 --> 00:08:19.565 So it's very successful scientific 164 00:08:19.995 --> 00:08:22.325 performance, business performance. 165 00:08:23.025 --> 00:08:25.485 Now what about stock market performance? 166 00:08:26.465 --> 00:08:29.005 The company is listed in 1999. 167 00:08:29.515 --> 00:08:34.085 Exactly when the NASDAQ is skyrocketing, the stock price 168 00:08:34.865 --> 00:08:38.805 is showing plus 191% 169 00:08:38.865 --> 00:08:39.925 the first day of listing. 170 00:08:41.065 --> 00:08:43.445 You remember in another vidcast I explained 171 00:08:43.445 --> 00:08:45.045 what happened to Snowflake. 172 00:08:45.505 --> 00:08:47.125 As far as Snowflake was concerned, 173 00:08:47.145 --> 00:08:49.205 the stock price was multiplied by two. 174 00:08:49.265 --> 00:08:50.565 The first day of listing here, 175 00:08:50.755 --> 00:08:52.645 it's almost multiplied by three. 176 00:08:53.225 --> 00:08:56.450 During the first year of quotation, the stock price is going 177 00:08:56.450 --> 00:08:57.885 to be multiplied by five, 178 00:08:58.465 --> 00:09:01.125 but it is a consequence of the creation 179 00:09:01.185 --> 00:09:02.685 of this internet bubble. 180 00:09:03.705 --> 00:09:06.285 Now, quite quickly, the company is reaching a revenue 181 00:09:06.505 --> 00:09:09.765 of 4 billion, and that is going to stabilize 182 00:09:10.785 --> 00:09:14.885 in 2017 when Nokia is potentially interested 183 00:09:15.625 --> 00:09:19.205 in buying Juniper networks for $16 billion. 184 00:09:19.585 --> 00:09:21.485 The revenues generated by the company 185 00:09:22.265 --> 00:09:24.805 are only 4.9 billion. 186 00:09:24.985 --> 00:09:28.205 You remember it was 4 billion in 2004, 187 00:09:28.825 --> 00:09:30.525 and both Nokia 188 00:09:31.025 --> 00:09:34.765 and Juniper are looking for clients, for new clients, 189 00:09:34.905 --> 00:09:36.525 for gross revenues. 190 00:09:37.355 --> 00:09:39.125 When Juniper is listed, 191 00:09:39.745 --> 00:09:43.645 the market capitalization is $1.7 billion 192 00:09:43.825 --> 00:09:47.205 and the stock price is $34 per share. 193 00:09:48.025 --> 00:09:50.885 Now the nominal is going to be divided by six, 194 00:09:51.705 --> 00:09:55.685 and today the stock market, the market capitalization 195 00:09:55.685 --> 00:10:00.125 of the company is 11.8, almost $12 billion. 196 00:10:01.145 --> 00:10:02.805 And the stock price recently 197 00:10:02.805 --> 00:10:05.805 because of the acquisition, moved from 30 to 37. 198 00:10:05.945 --> 00:10:08.445 So it looks like the same stock price, 199 00:10:08.905 --> 00:10:11.285 but the nominal has been divided by six. 200 00:10:11.715 --> 00:10:15.525 This is why the value has been multiplied by six. 201 00:10:16.225 --> 00:10:18.205 Now, there is a very interesting multiple, 202 00:10:18.375 --> 00:10:20.605 which gives you an idea about the profitability, 203 00:10:20.745 --> 00:10:21.765 the performance of the company, 204 00:10:21.905 --> 00:10:23.525 but also the prospects for growth. 205 00:10:24.205 --> 00:10:27.045 Multiple is enterprise value divided by a bid, 206 00:10:27.505 --> 00:10:31.565 and it is 16, which demonstrate that the market sees 207 00:10:32.115 --> 00:10:36.285 some in potential improvement in the situation of Juniper. 208 00:10:36.395 --> 00:10:39.685 It's quite interesting to confront the evolution 209 00:10:39.685 --> 00:10:41.445 of Juniper the last five years 210 00:10:41.705 --> 00:10:43.405 and the evolution of the Nasdaq. 211 00:10:44.715 --> 00:10:48.245 Very simply, as far as the NASDAQ is concerned, multiplied 212 00:10:48.245 --> 00:10:50.765 by two, of course there were some fluctuations. 213 00:10:51.305 --> 00:10:53.365 It went up dramatically. It went down. 214 00:10:53.555 --> 00:10:58.365 It's up again from five years ago to today, plus 200%. 215 00:10:58.865 --> 00:11:00.325 As far as Juniper is concerned, 216 00:11:00.325 --> 00:11:03.205 it's plus 27 up to the murmur. 217 00:11:03.205 --> 00:11:07.285 The HPE is making an offer and today it's plus 60%, 218 00:11:07.305 --> 00:11:08.965 but as a consequence of the offer, 219 00:11:09.225 --> 00:11:11.765 but standing alone, uh, the last five years, 220 00:11:11.985 --> 00:11:16.085 it shows a return of plus 27% for the shareholders. 221 00:11:16.645 --> 00:11:19.445 A few weeks ago, the 10th of January, 2024, 222 00:11:20.045 --> 00:11:24.205 HPE Hewlett Packet Enterprise announces that it's going 223 00:11:24.205 --> 00:11:28.725 to buy Juniper Networks for an enterprise value of 224 00:11:29.405 --> 00:11:30.445 $14 billion. 225 00:11:30.985 --> 00:11:34.205 HP is going to pay $40 per share 226 00:11:34.385 --> 00:11:36.525 for the 320 million shares, 227 00:11:36.695 --> 00:11:40.245 which represents $12.8 billion, 228 00:11:40.945 --> 00:11:42.725 and it's going to be paid in cash, 229 00:11:42.945 --> 00:11:45.685 100% all cash transaction. 230 00:11:47.085 --> 00:11:50.965 Interestingly, today's the market cap is 11.8 231 00:11:51.265 --> 00:11:53.725 and the stock price is $37. 232 00:11:54.225 --> 00:11:56.005 Not yet exactly $40. 233 00:11:56.335 --> 00:11:57.765 Maybe there is a little bit 234 00:11:57.765 --> 00:12:00.205 of uncertainty about the business 235 00:12:00.425 --> 00:12:01.765 and the evolution of the merger. 236 00:12:02.305 --> 00:12:04.085 If you look at the balance sheet of June, 237 00:12:05.145 --> 00:12:06.445 the interest bearing debt, 238 00:12:06.445 --> 00:12:09.045 the financial debt represents gross value, 239 00:12:09.345 --> 00:12:11.605 1.6 billion net of cash. 240 00:12:12.195 --> 00:12:13.845 It's 0.4 billion. 241 00:12:14.865 --> 00:12:16.805 So to calculate the enterprise value, 242 00:12:17.155 --> 00:12:19.005 some people take their gross debt, 243 00:12:19.075 --> 00:12:20.485 some people take the net debt. 244 00:12:21.185 --> 00:12:23.925 At the end of the day, the enterprise value lies within a 245 00:12:23.925 --> 00:12:27.685 range, which is 13.2, $14.4 billion. 246 00:12:27.795 --> 00:12:30.165 It's around $14 billion. 247 00:12:30.755 --> 00:12:34.165 What about HPE Hewlett Packard Enterprise? 248 00:12:34.915 --> 00:12:38.325 Well, everybody on the planet knows Hewlett Packard, 249 00:12:38.925 --> 00:12:40.605 a Californian icon. 250 00:12:40.905 --> 00:12:42.845 The beginning of California 251 00:12:42.945 --> 00:12:45.725 as the early days was the first garage as far 252 00:12:45.725 --> 00:12:47.245 as innovations concerned. 253 00:12:47.825 --> 00:12:51.965 Now, Packard made some spinoffs including one in 254 00:12:51.965 --> 00:12:53.245 2017. 255 00:12:53.985 --> 00:12:57.325 Now, H HPEs know more about printers, about PCs 256 00:12:57.325 --> 00:12:59.765 or whatsoever it's about servers, networks, 257 00:13:00.485 --> 00:13:01.845 software, et cetera. 258 00:13:02.585 --> 00:13:05.365 The revenues today 2023 259 00:13:05.985 --> 00:13:08.445 are $29 billion. 260 00:13:09.355 --> 00:13:13.685 It's the same as the revenues in 2017 when the company 261 00:13:14.145 --> 00:13:16.805 was created and spun off from hp. 262 00:13:17.585 --> 00:13:19.485 So it's not very much about growth, 263 00:13:20.225 --> 00:13:24.725 and if you look back in 2013, the equivalent of HP at 264 00:13:24.725 --> 00:13:28.405 that time was generating revenues of $32 billion. 265 00:13:28.745 --> 00:13:30.245 So the company is stagnating 266 00:13:30.865 --> 00:13:33.325 and the performance is absolutely not outstanding. 267 00:13:33.425 --> 00:13:37.725 The return on capital employed is 8.5% after tax. 268 00:13:37.785 --> 00:13:39.445 It hardly pay the what? 269 00:13:40.185 --> 00:13:43.725 The what can be estimated at six, 7%, something like that. 270 00:13:44.065 --> 00:13:45.365 Now, if the rose say 271 00:13:45.495 --> 00:13:48.445 after tax pays the work, there is no positive 272 00:13:48.445 --> 00:13:50.845 or negative performance as this is why the price 273 00:13:50.845 --> 00:13:52.085 to book is one. 274 00:13:52.585 --> 00:13:55.325 The market capitalization exactly matches 275 00:13:55.395 --> 00:13:58.245 with the book equity, no value creation, 276 00:13:58.505 --> 00:14:03.245 no value distraction, and no gross as a consequent. 277 00:14:03.245 --> 00:14:06.525 The multi multiple enterprise value EBITDA is six. 278 00:14:07.185 --> 00:14:11.205 It was 16 for Juniper, but Juniper is growing 279 00:14:11.465 --> 00:14:13.885 and we are going to have a look at the rose of juniper, 280 00:14:13.885 --> 00:14:17.725 which is significantly higher as far as HEPE is concerned. 281 00:14:17.785 --> 00:14:20.125 The company is not showing any performance 282 00:14:20.625 --> 00:14:22.725 and the company is not showing any growth. 283 00:14:23.225 --> 00:14:26.205 If we run the same benchmarking process for HP 284 00:14:26.225 --> 00:14:27.765 as the one we did for Juniper, 285 00:14:27.785 --> 00:14:32.125 and we confront HP last five years with the nasdaq, 286 00:14:32.585 --> 00:14:35.085 nasdaq, same story plus 200%. 287 00:14:35.395 --> 00:14:38.565 What about HPE plus 23%. 288 00:14:39.025 --> 00:14:42.365 During the first two years of this period, there was a kind 289 00:14:42.365 --> 00:14:45.885 of parallel between the evolution of HPE and Nasdaq 290 00:14:46.625 --> 00:14:50.445 and the last three years there was a stagnation in the stock 291 00:14:50.455 --> 00:14:54.005 price of HPE when NASDAQ is skyrocketing. 292 00:14:54.535 --> 00:14:56.405 Let's go back to the financial metrics 293 00:14:56.585 --> 00:14:58.485 of Juniper Networks today. 294 00:14:58.985 --> 00:15:01.365 You remember we offered price is $40, 295 00:15:01.935 --> 00:15:05.085 which is a little bit more than the $37 per share, 296 00:15:05.085 --> 00:15:07.445 which you can read today on the screen. 297 00:15:08.305 --> 00:15:11.365 In 2023, Juniper Networks generated revenues 298 00:15:11.365 --> 00:15:13.005 of $5.6 billion, 299 00:15:14.045 --> 00:15:17.205 a little bit more than the equivalent in 20 22, 5 300 00:15:17.215 --> 00:15:18.645 $0.3 billion, 301 00:15:19.565 --> 00:15:24.165 a little bit more than the 4.9 in 2017 when Nokia 302 00:15:24.225 --> 00:15:25.765 was considering the merger. 303 00:15:26.515 --> 00:15:28.805 It's not a outstanding growth rate. 304 00:15:28.995 --> 00:15:33.005 It's smoothly growing the operating income. 305 00:15:33.145 --> 00:15:35.165 The EBIT looks a little bit better 306 00:15:35.865 --> 00:15:39.165 in 20 23, 900 $40 million, 307 00:15:39.665 --> 00:15:42.645 twenty twenty two, eight hundred and thirty $5 million. 308 00:15:42.785 --> 00:15:47.045 The return on sales operating income divided by revenues is 309 00:15:47.565 --> 00:15:51.725 17% In 2023, it was 16% 310 00:15:52.345 --> 00:15:56.485 in 2022, but the return says not the return capital. 311 00:15:56.705 --> 00:15:58.805 To calculate the return capital, you need 312 00:15:58.805 --> 00:16:00.405 to calculate the capital employed first. 313 00:16:00.515 --> 00:16:04.885 Capital employed is equity plus net financial debt. 314 00:16:05.705 --> 00:16:09.685 The book equity is 4.5 billion in 2023. 315 00:16:09.705 --> 00:16:11.285 You add the net financial debt 316 00:16:11.385 --> 00:16:15.605 and you get $4.9 billion in 2022. 317 00:16:15.665 --> 00:16:18.285 The same calculation was about the same equity, 318 00:16:18.315 --> 00:16:22.805 4.5 plus 0.5 billion, so $5 billion 319 00:16:22.945 --> 00:16:24.085 of capital employed. 320 00:16:24.945 --> 00:16:27.965 Now you can divide the EBIT by the capital employee 321 00:16:27.965 --> 00:16:29.765 to get the return on capital employed, 322 00:16:30.335 --> 00:16:33.285 which was 19% in 2023 323 00:16:33.425 --> 00:16:36.005 and 16% in 2022. 324 00:16:36.545 --> 00:16:39.565 So you can observe that it's more than the cost of capital 325 00:16:40.065 --> 00:16:41.805 and it's a little bit growing. 326 00:16:42.655 --> 00:16:45.685 Let's go back to the offer which was made by HPE. 327 00:16:45.995 --> 00:16:50.445 Offered price, $40 per share value market capitalization, 328 00:16:50.445 --> 00:16:51.445 12.8. 329 00:16:52.465 --> 00:16:55.005 Now, if you add the net interest bearing debt 330 00:16:55.305 --> 00:16:58.085 to the market cap, you get the enterprise value, 331 00:16:58.085 --> 00:17:02.285 which is 12.8 plus 0.4, 13.2. 332 00:17:02.465 --> 00:17:05.405 You remember, this is a repetition of the calculation. 333 00:17:06.115 --> 00:17:08.805 It's interesting to confirm the enterprise value 334 00:17:08.945 --> 00:17:10.005 and the capital employed, 335 00:17:10.105 --> 00:17:11.805 and then you get the market to book. 336 00:17:12.135 --> 00:17:15.725 Enterprise value divided by capital employed is 13.2 divided 337 00:17:15.745 --> 00:17:20.285 by 4.9, which is 2.7 times. 338 00:17:21.875 --> 00:17:23.685 It's quite close to the price to book, 339 00:17:23.685 --> 00:17:25.885 which was only one for HPE. 340 00:17:26.025 --> 00:17:29.165 Now it's 2.7 times the capital employed. 341 00:17:29.505 --> 00:17:31.845 You remember that the return capital employed was 342 00:17:32.445 --> 00:17:36.605 19% in 2023, and I said that it exceeds the walk. 343 00:17:36.825 --> 00:17:38.285 That's calculated the work 344 00:17:39.145 --> 00:17:41.805 to calculate the work you need the cost of equity capital, 345 00:17:41.805 --> 00:17:43.605 what is expected by shareholders, 346 00:17:44.265 --> 00:17:47.725 and then in order to apply the capital asset pricing 347 00:17:47.735 --> 00:17:48.885 model, you need better. 348 00:17:49.745 --> 00:17:54.405 The beta is supposedly close to one 0.94. 349 00:17:55.305 --> 00:17:59.605 The long term bond rate is 3.8% tenure government bond rate, 350 00:18:00.025 --> 00:18:03.925 so 3.8 plus 0.94 multiplied 351 00:18:03.925 --> 00:18:06.565 by the equity market risk premium in the United States, 352 00:18:06.565 --> 00:18:07.605 about 6%. 353 00:18:08.305 --> 00:18:12.165 You get to a cost of equity capital of 9.4%. 354 00:18:13.315 --> 00:18:14.925 Debt is much, much, 355 00:18:15.075 --> 00:18:17.365 much lower than the market capitalization. 356 00:18:17.425 --> 00:18:19.525 So it's not going to contribute very much 357 00:18:19.545 --> 00:18:20.925 to the calculations of the work. 358 00:18:21.345 --> 00:18:23.325 As an approximation, let's consider 359 00:18:23.325 --> 00:18:25.805 that the weight at average cost of capital matches 360 00:18:25.915 --> 00:18:29.605 with the cost of equity capital with 9.4%. 361 00:18:30.185 --> 00:18:32.925 In the previous calculation, I said that the market to book, 362 00:18:32.925 --> 00:18:36.765 which was offered by HPE was 2.7. 363 00:18:37.745 --> 00:18:40.405 Now we are going to confront this actual market to book 364 00:18:40.405 --> 00:18:42.325 with a calculated market to book, 365 00:18:42.865 --> 00:18:45.485 we can calculate a theoretical market to book, 366 00:18:45.545 --> 00:18:48.285 taking into consideration the economic profit. 367 00:18:48.705 --> 00:18:52.205 So the confrontation between rose after tax and the wac, 368 00:18:52.585 --> 00:18:54.765 and introducing growth in the calculation. 369 00:18:55.545 --> 00:18:57.925 The mathematical formula says that the market 370 00:18:57.945 --> 00:19:00.365 to book calculated is numerator, rose 371 00:19:00.375 --> 00:19:02.165 after tax, less growth, 372 00:19:03.195 --> 00:19:05.765 denominator walk, less growth. 373 00:19:06.985 --> 00:19:09.045 We know that the rose is 19%. 374 00:19:09.345 --> 00:19:11.565 To calculate the rose after tax, we need 375 00:19:11.565 --> 00:19:14.805 to calculate the apparent tax rate, which is about 10%. 376 00:19:15.585 --> 00:19:20.565 So the rose after tax is 19 minus tax, which is about 17%. 377 00:19:21.825 --> 00:19:24.445 The market to book, assuming that there is no growth, 378 00:19:24.905 --> 00:19:27.445 is Rosie after tax divided by the wac. 379 00:19:28.185 --> 00:19:32.365 It is 17% divided by 9.4%, 1.8. 380 00:19:33.465 --> 00:19:38.045 So at the market to book offered by HPE is 2.7, 381 00:19:38.425 --> 00:19:41.805 and the market to book without any growth is 1.8. 382 00:19:42.175 --> 00:19:46.005 There is some growth in the calculation, which is made 383 00:19:46.025 --> 00:19:50.325 by HPE the day they offer $40 per share for Juniper. 384 00:19:51.065 --> 00:19:53.005 In fact, starting from the same formula, 385 00:19:53.225 --> 00:19:55.325 you can calculate the implicit growth rate 386 00:19:55.665 --> 00:19:58.445 and you get to something which is about 5%. 387 00:19:58.945 --> 00:20:03.205 You remember the actual growth was 6% as far 388 00:20:03.205 --> 00:20:07.165 as revenues were concerned, 2023 against 2022. 389 00:20:08.145 --> 00:20:12.245 So basically HPE is paying the current gross 390 00:20:12.705 --> 00:20:13.845 and the current rose. 391 00:20:14.515 --> 00:20:15.605 What is in the hope 392 00:20:16.305 --> 00:20:18.285 and the strategy of HP 393 00:20:18.635 --> 00:20:20.845 that the merger is going to create growth? 394 00:20:22.025 --> 00:20:26.725 HP is stagnating. Juniper is smoothly growing. 395 00:20:27.625 --> 00:20:30.405 Is a merger between these two companies going 396 00:20:30.405 --> 00:20:32.285 to create growth opportunities? 397 00:20:32.675 --> 00:20:35.565 What about performance? Juniper is performing. 398 00:20:36.155 --> 00:20:39.245 Juniper's economic profit is significantly positive. 399 00:20:39.955 --> 00:20:41.805 What about HPE Neil? 400 00:20:42.105 --> 00:20:46.405 No performance, no profit, no loss compared with a wac. 401 00:20:47.145 --> 00:20:49.565 So the question is, is the merger going 402 00:20:49.565 --> 00:20:51.285 to create growth opportunities? 403 00:20:51.985 --> 00:20:54.045 Is it going to contribute to performance? 404 00:20:55.195 --> 00:20:57.005 Basically, the answer which is 405 00:20:57.205 --> 00:21:00.485 provided today by Wall Street, by the capital market is 406 00:21:00.485 --> 00:21:03.965 that Ulet Packers interest in Juniper is not 407 00:21:04.495 --> 00:21:06.325 connecting with Wall Street. 408 00:21:07.025 --> 00:21:09.845 So Wall Street, the capital markets do not trust 409 00:21:09.845 --> 00:21:12.165 that this merger is going to create a lot of value. 410 00:21:13.355 --> 00:21:16.875 What will happen, we'll see. Thank you very much.