Money Matters - Simplified

Cisco buys Starent for $2.9 billion

The acquirement of Starent continues Cisco’s aggressive campaign of expansion through acquisitions, backed by the company’s $35 billion cash reserve.

California, October 14: Cisco Systems Inc. (NASDAQ: CSCO, SEHK: 4333), the leading player in the networking equipment industry, agreed to buy Massachusetts based Starent Networks Corp (NASDAQ: STAR) in a deal valued at $2.9 billion.

As a part of the deal, Cisco will pay $35 a share in cash and also take over all the outstanding equity awards. The price per share represents a 21 percent premium over Starent’s closing price yesterday.

Good commercial sense
The deal highlights the remarkable surge in demand for cellular data services worldwide.

Cisco expects that the current acquisition, its second multibillion- dollar purchase in less than a fortnight, will bear fruits and add to the behemoth’s revenue by fiscal 2012.

“Cisco sees the consumer trend toward the pervasive adoption of mobile devices,” Joanna Makris, an analyst at Brigantine Advisors said of the deal. “They want to find a way to drive network traffic and the growth of their infrastructure business,” added Markis.

The beneficiaries
Starent’s equipment helps wireless carriers handle immense amounts of e-mail, music, and video traffic. The equipments help the service provider comprehend the type of traffic that crosses the network and therefore enables immediate steering of that information to mobile devices.

The deal spells a lot of money for Starent’s top brass. Director Edward T. Anderson held 10.6 million company shares as of Jan. 15. At $35 per share, he bags $371 million.

The other big beneficiaries are investment firms Matrix Partners, North Bridge Venture Partners, Highland Capital Partners, and Fidelity Investments, who amongst them, have 31 million shares worth $1.1 billion.

Founder of the acquired company, Dahod, too expressed happiness at the deal, “Today’s announcement is not a termination of our work, but another milestone in our journey. Rarely do you see two organizations so well aligned in their culture, business, and values.’’

Cisco on a buying binge
In the last 25 years Cisco has purchased close to 130 businesses and has used them as a platform for entering new markets like cable set-top boxes and home wireless rout.

Chief Executive Officer John Chambers has his eyes on more acquisitions and claimed that his company will be “aggressive” and “active” in taking over other players.

Joel Levington, director of corporate credit for Brookfield Investment Management Inc noted, “Cisco has historically been an asset buyer during downturns. With cash not earning much, acquisitions can be an accretive alternative.”