The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, May 12 (Reuters Breakingviews) - Tinkering in a garage created Hewlett Packard 86 years ago, but fraught financial fiddling complicated matters. The technology pioneer’s cloud networking offshoot, Hewlett Packard Enterprise HPE.N, is now battling a rabble-rousing investor as it tries to save yet another troubled takeover. The situation augurs additional structural adjustments.

HPE’s split from its PC-making parent almost a decade ago has been fruitful. The offshoot generated a 280% total return for shareholders through early this year, outpacing the S&P 500 Index’s 240%. HP, too, overcame contentious deals like its 2002 combination with Compaq, delivering 220% following the HPE spinoff.

While sloughing off remainders of the disastrous 2011 purchase of Autonomy, HPE made smart add-on acquisitions like Aruba Networks, growing its data analysis business Intelligent Edge. Combining computing power and networking has not boosted HPE’s server sales, however. Fierce competition also helps explain boss Antonio Neri’s decision to pay $14 billion for connectivity competitor Juniper Networks JNPR.N. U.S. trustbusters sued to block the plan in January.

Amid this limbo, tariffs and an inventory management snafu plunged HPE shares into freefall. Their price halved between January 24 and April 8, exacerbating a valuation gap with Dell Technologies DELL.N. The rival server business, once comparably sized, may nearly double HPE’s in revenue this year. Dell’s enterprise trades at more than 7 times expected EBITDA for the next 12 months, according to Visible Alpha data, while HPE fetches less than 5 times.

The situation tempted Elliott Investment Management, which has amassed an HPE stake greater than $1.5 billion, Bloomberg reported in mid-April. Although the pushy hedge fund manager wants to oust Neri, according to Semafor, he brings a unique perspective to any M&A upheaval after 30 years at HP, including seven leading HPE.

If the Juniper merger collapses, HPE could use its cash to buy back shares instead and redouble efforts to increase recurring revenue. More troubles await either way.

Together, Juniper and Intelligent Edge would generate an estimated $2.5 billion of operating income, including anticipated synergies. Using Juniper’s pre-deal multiple of more than 11 times imputes a $29 billion valuation, eclipsing the entirety of HPE.

This math suggests HPE’s server business is getting short shrift. Its nearly $20 billion in expected net debt if the Juniper deal closes, according to Bank of America analysts, looks prohibitive, but about $12 billion of it is tied to a financing subsidiary. Excise it, and HPE becomes a plausible buyout candidate, with roughly $2 billion of operating income to support acquisition debt.

Another carve-up would probably be antagonistic. For a company spawned from HP, whose own founding families resisted the Compaq deal, it’s all part of the computing process.

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CONTEXT NEWS

Hedge fund manager Elliott Investment Management has taken a $1.5 billion stake in servers and networking company Hewlett Packard Enterprise and wants to replace CEO Antonio Neri, Bloomberg and Semafor reported, respectively, on April 15 and April 17, both citing unnamed sources.

The U.S. Department of Justice on January 31 sued to block HPE’s $14 billion acquisition of rival Juniper Networks. A judge has set an initial trial date of July 9.

(Editing by Jeffrey Goldfarb and Maya Nandhini)

((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))