Cisco buying 2 closely held firms for $7.4 billion

August 27, 1999|By BLOOMBERG NEWS

SAN JOSE, Calif. -- Cisco Systems Inc., the world's biggest maker of Internet equipment, yesterday agreed to buy two closely held companies for $7.4 billion in stock to add products that connect phone systems with fiber-optic networks.

Cisco will pay $6.9 billion for Cerent Corp., which makes equipment for routing phone calls and Internet traffic through fiber-optic lines. The unprofitable start-up had first-half revenue of $9.9 million. Cisco also is buying Monterey Networks Inc., of Richardson, Texas, whose technology lets telecommunications companies add capacity to their networks, for $503 million.

The Cerent acquisition, Cisco's most expensive ever, will help the company take on big phone-equipment makers, including rivals Lucent Technologies Inc., Nortel Networks Corp. and Alcatel SA. Cisco's sales to telecommunications-service providers have been rising at a faster pace than revenue from large business customers, its stronghold.

"It's an $8 billion-plus market that Cisco couldn't even touch with a 10-foot pole before now," said Maribel Lopez, an analyst at Forrester Research.

Fiber-optic cable uses light to send voice and data traffic instead of the electrical impulses used over traditional copper wire. This allows for faster transmission speeds and greater capacity. Lucent and Nortel are developing their own products in optical networking, analysts said.

Cisco will exchange 100 million common shares for Cerent of Petaluma, Calif., and 7.3 million shares for Monterey, for all of the companies' common stock, options and warrants.

Cisco shares rose 31.25 cents yesterday to a record $68.9375. It was the most actively traded stock in the United States.

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