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Cisco Forges Ahead With Buying Spree

May 06, 2000|From Reuters

Cisco Systems Inc., the largest maker of computer networking equipment, said Friday it would buy ArrowPoint Communications Inc. for more than $6 billion in stock in a move to add sophisticated software for routing Web-page traffic to its portfolio.

The acquisition--Cisco's second-largest ever--marks its 10th takeover this year, and the San Jose-based company has no plans to slow the pace. It has announced its intention of swallowing another 10 to 15 targets before the year is through, up from 18 in 1999. Only last year's $6.9-billion deal to acquire Cerent Corp., which develops optical networking technology, carried a higher value than the ArrowPoint transaction.

With ArrowPoint, Cisco is acquiring a product line that is clearly in demand. As traffic on the Web explodes and electronic commerce at companies such as Amazon.com Inc. surges, the need for smooth delivery of Web pages to users grows as well. Acton, Mass.-based ArrowPoint's three products, known as content switches, do just that--efficiently bringing Web data to users by means of advanced software.

"The idea is to take all this traffic and be able to balance this data load across multiple [computer] servers to smooth out peaks in demand," said Michael Cristinziano, an analyst for Gerard Klauer Mattison.

"I imagine this deal will result in an order of magnitude of effectiveness in terms of sales of ArrowPoint's product" because Cisco's effective sales force will market the devices, he said.

Cisco executives said the market for content switching looked even stronger than industry forecasts, which see sales growing to $2 billion in 2003, from $500 million now.

Shares in both companies gained after news of the deal. In Nasdaq trading, Cisco jumped $4.13 to close at $67.75. ArrowPoint shares gained $5.38 to close at $140.19, adding to a 20% gain Thursday.

About two-thirds of ArrowPoint's revenue comes from Internet service providers; application service providers, which provide Web-based software; and Web site management and hosting companies.

Terms of the deal call for Cisco to issue 2.1218 of its shares for each ArrowPoint share and option. That values ArrowPoint at about $135 per share, based on Cisco's stock price Thursday.

ArrowPoint, founded in 1997, made its debut as a public company March 31, and shares more than tripled to close at $118.97 on its first day of trading.

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