Juniper shares drop after Nokia denies takeover chatter

(Reuters) - Shares of Juniper Networks Inc JNPR.N fell 8 percent in pre-market trade on Thursday after Finland's Nokia NOKIA.HE denied reports that it was in talks to buy the U.S. network gear maker.

A Nokia logo is seen at the company's headquarters in Espoo, Finland, May 5, 2017. REUTERS/Ints Kalnins

CNBC on Wednesday reported, citing sources, that Nokia was in talks to buy Juniper at an offer that would value the company at around $16 billion, higher than Juniper’s $11.26 billion market capitalization as of Wednesday’s close.

That valuation would imply a price of about $42 per share, a level last seen by Juniper shareholders six years ago, Morningstar analyst Ilya Kundozerov wrote in a client note.

Within hours of the CNBC report, however, Nokia, which does not typically comment on market rumors, said it was not preparing an offer for Juniper.

Bernstein analyst Pierre Ferragu said Nokia acquiring Juniper seemed a stretch citing an operational alliance limited to $300 million to $400 million in costs, near impossible product integration in routing and a risk of negative revenue combination.

Juniper, which makes routers and switches that allow computers to link with the internet, counts Cisco CSCO.O, Nokia and Hewlett Packard Enterprise HPE.N among its rivals.

Nokia also competes with Cisco's partner Ericsson ERICb.ST in Europe.

Bernstein’s Ferragu thinks Ericsson, not Nokia, is a better fit for Juniper.

“‎The natural buyer for Juniper remains Ericsson and for now, Ericsson is not in a position to consider the opportunity,” he said.

The telecom network equipment industry is going through the toughest part of a decade-long cycle, as demand for faster 4G mobile broadband equipment has peaked, while demand for next-generation 5G networks remains a few years away.

In the latest third quarter, Juniper reported a 2 percent decline in third-quarter revenue and Nokia’s network sales fell 9 percent to 4.8 billion euros ($5.7 billion).

Nokia had estimated the global market to fall 4-5 percent this year, compared with a previous forecast for a 3-5 percent drop, followed by a 2-5 percent fall in 2018.

The Finnish company is still digesting the acquisition of French rival Alcatel-Lucent for which it spent about $17 billion last year.

Nokia shares were down 0.4 percent, while Ericsson’s shares were up 0.4 percent.

Reporting by Supantha Mukherjee in Bengaluru; Editing by Bernard Orr