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SAN FRANCISCO (CN) — The U.S. Justice Department sued Hewlett Packard on Thursday to block a potential $14 billion merger with Juniper. The lawsuit was filed in the United States District Court in the Northern District of California. It was the first attempt by the Trump administration to stop the acquisition. The Justice Department deemed the potential deal “presumptively unlawful” and an “increase concentration in an already consolidated relevant market for enterprise-grade WLAN solutions.”
One year ago, Hewlett Packard announced it was buying Juniper Networks for $40 per share. The goal was to double Hewlett Packard’s networking business and establish a larger footprint within its respective market. Hewlett Packard and Juniper are the second and third-largest providers of enterprise-grade WLAN networks in the United States, respectively.
Mergers have been at the forefront of business news in recent years, with the proposed Kroger-Albertsons deal as an example. In December, the Federal Trade Commission and local judges in Oregon and Washington state successfully blocked a $24.6 billion merger between the two grocery store chains, which would’ve been the largest in U.S. history.
One problem stated with the merger was Hewlett Packard eliminating Juniper as a strong competitor. According to the complaint, the two firms merging would result in over 70% of the relevant market being controlled by Hewlett Packard and Juniper. This was based on the Herfindahl-Hirschman Index, which measures the market share of each firm competing in its respective market.
Juniper has emerged as a disruptive force in the WLAN provider market, introducing cheaper, innovative tools for customers throughout the United States. Their annual revenue for 2023 alone was $5.56 billion, according to Statista. That’s a sharp increase of $1.1 billion from 2019 and a 4.97% increase from 2022 ($5.301 billion).
The lawsuit also states the merger will result in higher prices and less innovation. Juniper’s emergence as a top market performer has forced Hewlett Packard to offer significant discounts to get more business. Hewlett Packard stated its concerns about Juniper undercutting its company over price, with the discounts coming as a result.
The lawsuit added that head-to-head competition has benefited customers of Hewlett Packard and other competitors by innovating network management. With the proposed merger, it would encourage other enterprise-grade WLAN vendors to coordinate a concerted effort against Hewlett Packard. The lawsuit states that most competitors don’t have the distribution networks necessary to rapidly grow.
The Justice Department brought up the Clayton Antitrust Act of 1914 as the reason for the lawsuit. The law prohibits anticompetitive business practices and promotes fair competition within a market sector. The merger would violate this act, pitting smaller competitors within the WLAN provider market against Hewlett Packard and Juniper.
Hewlett Packard countered that the proposed merger with Juniper would “create synergies by combining operations and removing duplication in the companies’ sales, administrative, and other organizations.”
The Palo Alto-based company responded to the filing of the complaint on Thursday, releasing a statement condemning the action:
“We believe the Department of Justice’s analysis of this acquisition is fundamentally flawed and we are disappointed in its decision to file a suit attempting to prohibit the closing of the transaction. We will vigorously defend against the Department of Justice’s overreaching interpretation of antitrust laws and will demonstrate how this transaction will provide customers with greater innovation and choice, positively change the dynamics in the networking market by enhancing competition, and strengthen the backbone of U.S. networking infrastructure.”
Hewlett Packard added that the transaction was approved by antitrust regulators in 14 jurisdictions. These include the European Commission, the United Kingdom, and the Competition and Markets Authority, each of which approved the transaction while acknowledging the competitive benefits involved.
The company also stated the transaction will benefit customers with an AI-driven and cloud-native IT portfolio. That includes networking architecture needed for managing the growing needs within connectivity.
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