EXCLUSIVE-Tech giants eye F-5 Networks acquisition-sources

Mon Oct 4, 2010 12:35pm EDT

* F5 networks was approached over a year ago

* Considered on shortlist of strategic assets

* Rich valuation still lower than Riverbed and Acme

By Nadia Damouni

NEW YORK, Oct 4 (Reuters) - F5 Networks Inc was approached over a year ago about a takeover and remains a potential target for technology giants eager to expand into the data center architecture space, said people familiar with discussions of the matter.

International Business Machines Corp (IBM.N), Dell Inc DELL.O, Hewlett-Packard Company (HPQ.N), Oracle Corp ORCL.O, Juniper Networks (JNPR.N) and Cisco Systems (CSCO.O) are eyeing F5 Networks Inc (FFIV.O) as a possible acquisition target as data center consolidation heats up, these sources said.

The Seattle, Washington-based networking company, which focuses on boosting the delivery of applications in data centers, was approached about the prospect of a takeover over a year ago, said one source. The identity of the potential buyer was not revealed.

Although a few potential buyers have expressed interest, the company has decided not to run an auction, said a second person. "They have done pretty well on their own... there are a lot of reasons for them to stay independent," said one person.

The discussions between the first potential buyer and F5 were described as "on and off for a while," but were eventually called off over valuation issues, said another.

A spokesman for F5 declined to comment.

Meanwhile, the company's stock has rapidly appreciated from about $40 a share a year ago to around $103 last Friday. It reported $780 million worth of cash and investments as of June 30 and currently has a market cap of $ 8.31 billion.

The valuation of F5 is rich, but 2011 estimates have plenty of room for upside, said Alex Henderson, a networking technology analyst at Miller Tabak + Co.

Currently F5 is trading at around 33-times 2011 estimates, but that is a discount to peers, Riverbed Technology (RVBD.O) at 37 times and Acme Packet APKT.O at 41.

And HP's recent $2.35 billion acquisition of 3PAR was done in excess of 120-times 2011 estimates for an 18-20 percent growth company.

F5 is considered one of the best assets in the networking business, said one of the sources. "Everybody would want to acquire them if they could get them for a price that makes sense," this person said.

A banker that advises a large private equity firm said F5 remains on the radar of big tech companies looking for strategic network assets.

In recent weeks, a number of sell-side analysts have increased their price targets for F5 to range from $105 to $123 per share.

"Is F5 too big to buy? I would say no way. If they can alter the equation sufficiently, it can change the dynamic in the data center architecture division," Miller Tabak's Henderson told Reuters.

(Reporting by Nadia Damouni; Editing by Tim Dobbyn)

((nadia.damouni@thomsonreuters.com; +1 646 223 6356; Reuters Messaging: nadia.damouni.reuters.com@reuters.net)) Keywords: F5NETWORKS/TECH

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