How A Deal Comes Together - The Public Company Merger Proxy

While tell-all books and investigative reporting are the only way to understand how a private transaction comes together, the process by which a US public company is sold is well documented in a merger proxy. The most interesting sections of the document chronicle how the parties came to a deal, how the board evaluated the valuation and how much the companies paid their advisors.

As an example, let us examine the acquisition of Juniper Networks by HP Enterprise on January 9, 2024. Juniper filed its definitive merger proxy on February 26, 2024 (link here).

The first section of interest is the Background of the Merger starting on p36. The dialogue between the two companies' CEOs started on February 13, 2023 when HPE CEO Antonio Neri reached out to Juniper CEO Rami Rahim. For several months, executives of both companies negotiated non-disclosure agreements, held board meetings and hired their financial and legal advisors. HPE engaged Qatalyst Partners and JP Morgan as its advisors and Juniper selected Goldman Sachs. The companies shared financial projections and other confidential information, and HPE made a first offer of $37.75/share for Juniper. After subsequent negotiations, including Juniper's counterproposal at $45, HPE provided a best and final offer at $40/share. After Juniper deemed the final offer to be fair and agreed to other key terms including breakup fees and go-shop period, the two companies announced the deal.

The second section of interest is the Opinion of Goldman Sachs & Co. starting on p54. The valuation methodologies that Goldman used in evaluating the fairness of the $40 price are described in detail along with the financial projections provided by Juniper management. Goldman used a DCF analysis, precedent transactions, premiums paid and comparable public companies and the stock price ranges and implied multiples are all shown. Most interestingly, this section ends with a discussion of the fee paid to Goldman, $93 million(!) of which $14m was payable at the rendering of the opinion.

Given that HPE is paying cash to acquire Juniper, the last section of interest is the brief description of the financing arrangement. P7 mentions that Citi, JP Morgan and Mizuho are providing a $14 billion delayed draw term loan facility, a portion of which might be replaced by new debt, preferred equity and balance sheet cash in the future.

While much more detailed than the glossy investor presentation that the companies released with the transaction shown here, the merger proxy gets into the weeds of the deal, how it came together and what advice the bankers gave, making it highly educational for any aspiring banker.