[IP] Cisco to Aquire Scientific Atlanta]
Cisco Agrees to Buy Scientific-Atlanta for $6.9 Bln (Update1)
<http://www.bloomberg.com/apps/news?pid=10000103&sid=aTpuz8DmUxsc&refer=us#>
Nov. 18 (Bloomberg) -- Cisco Systems Inc. agreed to buy
Scientific-Atlanta Inc. for $6.9 billion, adding the second-largest U.S.
maker of set-top boxes for cable television and tapping into the growing
market for Internet TV.
Cisco, based in San Jose, California, will pay $43 a share, the
companies said today in a statement. The offer is 3.7 percent higher
than Lawrenceville, Georgia-based Scientific-Atlanta's closing price
yesterday.
By buying Scientific Atlanta, Cisco Chief Executive Officer John
Chambers is targeting consumers' growing use of television, Internet and
phone services from a single source as business spending on switches and
routers slows. Scientific-Atlanta is among providers of equipment for
SBC Communications Inc.'s Internet television product. An acquisition of
that size is a departure for Chambers, who has avoided making large
acquisitions.
``Cisco is very interested in expanding'' its Internet-TV products, UBS
AG analyst Nikos Theodosopoulos said today in a note before the
acquisition was announced. While a purchase of this size would be ``out
of character,'' it signals Cisco's desire to win a larger share of
telephone company spending on TV, he said.
Scientific-Atlanta's biggest customers include Time Warner Inc.'s cable
unit, the No. 2 provider of cable-television service, and Cablevision
Systems Inc., the largest provider in New York. Comcast Corp., the
largest cable-TV company in the U.S., also buys the company's boxes.
Scientific-Atlanta shares have jumped 25 percent since Oct. 25 on
speculation the company may be acquired. The shares rose $1.15 to $41.45
in New York Stock Exchange composite trading yesterday.
Chambers has been under pressure to boost growth and drive up a share
price that is down 20 percent in the past two years. Cisco rose 15 cents
to $17.37 on the Nasdaq Stock Market yesterday.
Consumer Products
Buying Scientific-Atlanta would give Cisco about 40 percent of the
market for set-top boxes, the Wall Street Journal reported earlier
today. The purchase would place Cisco in direct competition with
Scientific-Atlanta's biggest competitor, Motorola Inc.
SBC, the second-largest U.S. telephone company, in August picked
Scientific-Atlanta and Microsoft Corp., the largest software maker, to
make set-top boxes and software for its Internet-based television service.
Scientific-Atlanta last month reported fiscal first-quarter net income
of $60.7 million, or 39 cents a share, up from $55.9 million, or 36
cents, a year earlier. Sales in the three months ended Sept. 30 were
$490 million, an increase of 8 percent from a year earlier and down 7
percent from the previous quarter.
Scientific-Atlanta was founded in 1951 by six Georgia Institute of
Technology professors who put in $100 each. The first product was an
antenna tester, and within 11 years the company was making products for
the Apollo space missions. Scientific-Atlanta entered the fledgling
cable business in 1966 with an antenna device.
Cisco Deals
Cisco had cash and cash equivalents of $13.5 billion at the end of the
most recent quarter and said it will finance the deal with a combination
of cash and debt.
The purchase, which probably will close in the third quarter of Cisco's
fiscal year 2006, is the largest since Cisco paid $7.29 billion for
Cerent Corp. in 1999. Of the 10 companies bought by Cisco this year, the
largest was Airespace Inc. for $450 million.
The transaction will add to Cisco's consumer products after the
acquisition of Linksys Inc., a company that makes wireless networking
products for homes and small businesses, for $500 million in 2003. The
deal will add ``slightly'' to profit in fiscal 2007, before some costs,
Cisco said today.
Scientific-Atlanta will become part of the routing and service provider
technology unit, led by Senior Vice President Mike Volpi.
Scientific-Atlanta CEO Jim McDonald will report to Volpi.
Struggling Cisco
Chambers has struggled to fuel sales to meet the top end of his
long-term goals for 10 percent to 15 percent growth. Revenue rose 9.7
percent last quarter, and Chambers earlier this month forecast growth of
8 percent to 9 percent this period. Growth in routers and switches,
bought by large companies to guide Internet traffic, slowed to less than
8 percent while new businesses, including Linksys, rose 25 percent.
Chambers has said large acquisitions rarely work. As recently as Aug. 7,
Chambers told analysts that buying a big company was ``extremely
unlikely'' and ``outside our strategy and thinking.''
Cisco's Chief Development Officer and Chambers's No. 2, Charles
Giancarlo, seems to have a ``higher risk profile'' for acquisitions that
Cisco historically has had, Theodosopoulos wrote.
To contact the reporter on this story:
Angus Whitley in London at awhitley1@xxxxxxxxxxxxx
Last Updated: November 18, 2005 08:05 EST
Weblog at: <http://weblog.warpspeed.com>
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