China uncertainty imperils Cisco's $2.6B Acacia acquisition

Confusion over whether China has approved Cisco's purchase of Acacia has put the transaction into turmoil. Acacia is now seeking to cancel the deal, but Cisco is asking a US court to order Acacia back to the table.

At issue is China's State Administration for Market Regulation (SAMR). Acacia said in a statement Friday that SAMR's approval "was not received within the timeframe contemplated by the merger agreement" and, as a result, the company "exercised its right to terminate the proposed transaction in accordance with the terms of the merger agreement."

Importantly, in a filing with the US Securities and Exchange Commission (SEC), Acacia said it is not entitled to the $120 million Cisco agreed to pay the company if the merger was terminated.

But Cisco fired back Friday with a short announcement that China's SAMR "has determined that Cisco's submission is 'sufficient to address the relevant competition concerns.'" SDxCentral reported that other countries including the US and Germany have already signed off on the deal.

As a result, Cisco said it is asking the Delaware Court of Chancery – a court that boasts it is "widely recognized as the nation's preeminent forum for the determination of disputes involving the internal affairs" – to force the close of its proposed acquisition of Acacia. "Cisco is also seeking a court mandate that the agreement may not be terminated until the court resolves these matters, and an order from the court requiring Acacia to close the transaction," the company wrote.

Cisco announced its plans to acquire Acacia in 2019 for $2.6 billion. The company is hoping the move will disrupt the optical transport market by positioning it to become a key supplier of coherent optical interconnect components – embedded modules, pluggable modules and semiconductors – and thereby compete directly with optical heavyweights like Huawei, Ciena and Nokia.

This isn't the first time relations between the US and China appear to have imperiled major transactions in the telecom industry. For example, the US halted Broadcom's hostile takeover of Qualcomm, and Qualcomm dropped its proposed purchase of NXP after failing to receive Chinese approvals.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano