Cisco to Aquire Scientific Atlanta]

[Dave Farber <dave () farber net>]

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 () bloomberg net

Last Updated: November 18, 2005 08:05 EST

Weblog at: <http://weblog.warpspeed.com>


-------------------------------------
You are subscribed as lists-ip () insecure org
To manage your subscription, go to
 http://v2.listbox.com/member/?listname=ip

Archives at: http://www.interesting-people.org/archives/interesting-people/