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Optical/IP Networks

Cisco to Buy WebEx for $3.2B

Cisco Systems Inc. (Nasdaq: CSCO) is to become a fully fledged service provider by acquiring Web conferencing services specialist WebEx Communications for $57 in cash per share, or $3.2 billion, the IP networking giant announced today.

Cisco's chief development officer, Charlie Giancarlo, told a conference call that the acquisition is "the latest step in [Cisco's] vision for collaboration services" that will become increasingly important for business and residential users. "It's a natural extension for our vision of unified communications and collaboration over the open platform of the Internet."

WebEx's services are used by companies in one of Cisco's main growth sectors. "WebEx allows small and medium-sized business users to have access to the kind of communications" usually the reserve of much larger enterprises, noted Giancarlo, adding that "SMB is one of Cisco's fastest growing markets."

WebEx, which offers its services on a subscription basis, has more than 2 million registered users from the SMB community. The company generated revenues of $380 million and net income of $48.6 million in 2006. It has 2,200 employees.

Cisco's offer constitutes a 23 percent premium over WebEx's Wednesday closing price of $46.20, which valued the company at $2.3 billion. The news sent Cisco's stock down 13 cents, about 0.5%, to $25.72.

The deal is set to close in the fourth quarter of Cisco's financial year, which closes at the end of July. Cisco expects the deal to be neutral to its earnings in its 2008 fiscal year and accretive in the following financial year.

The acquisition will put Cisco into direct competition in the online communications and collaboration services sector with Microsoft Corp. (Nasdaq: MSFT).

The move comes only days after Cisco announced the acquisition of network file virtualization startup NeoPath Networks . (See Cisco Nabs NeoPath.)

— Ray Le Maistre, International News Editor, Light Reading

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