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Technology Sector Sees Little Merger Activity

March 07, 2001|Reuters

The yearlong slide in U.S. technology shares should have made many companies much less expensive for potential rivals looking for merger partners.

But data show that tech company merger activity has plummeted with the Nasdaq composite index. Even tech giants that could afford to pay for deals with cash, instead of their own depressed shares, aren't stepping up to buy smaller firms in the sector.

"Companies are not willing to make big bets when their confidence is shaky," said Tom Burnett, president of Merger Insight, an institutional research service.

For example, Cisco Systems, the world's biggest maker of gear that directs traffic on the Internet, announced 22 mergers last year worth $12 billion. Almost half of that total went to buy switch maker ArrowPoint Communications in May.

This year, Cisco hasn't done a single deal--even as tech shares have tumbled further.

Nonetheless, a Cisco spokeswoman said the company's overall strategy, including growth through acquisitions, remains intact.

There have been some takeover deals this year in tech. German engineering and electronics group Siemens said last month it will pay $1.5 billion to buy Efficient Networks, a Dallas-based broadband equipment maker.

But that deal is for cash, not stock.

"Cash is king in this market," said Kevin McClelland, principal at Broadview International, a tech advisory firm that specializes in mergers and private equity.

Siemens agreed to pay $23.50 a share for Efficient Networks. Although the deal price was down sharply from the stock's peak of $186 last year, it still was nearly double what the stock had been trading for in mid-February. That may at least offer hope to owners of some battered tech shares that if their firm becomes a target, the premium paid will be decent.

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