Cisco to Buy E-Meeting Firm -- WebEx Claims 64 % of Online Conference Biz

Mar 17, 05:27 PM

Current Headlines: By Jordan Robertson Associated Press

SAN FRANCISCO - Cisco Systems has agreed to acquire the online meeting company WebEx Communications for about $3.2 billion in cash, a takeover that furthers Cisco's push beyond its core market for networking gear and into the lucrative arena of business communications.

Cisco Systems Inc., the leading maker of routers and switches that direct data over computer networks, said Thursday it will pay $57 per share of WebEx Inc. That represents a 23 percent premium over WebEx's closing price of $46.20 Wednesday on the Nasdaq Stock Market.

Shares of WebEx soared $10.17, or 22 percent, to close at $56.37 on the Nasdaq Stock Market. Cisco shares fell 6 cents to $25.79.

The acquisition has been approved by both boards and is expected to close in the fourth quarter of fiscal 2007, Cisco said. Cisco said it expects the transaction to have a neutral effect on its fiscal year 2008 earnings after one-time charges are subtracted. The total purchase price will be about $2.9 billion when factoring in WebEx's $300 million in cash on hand.

San Jose-based Cisco has recently made a number of acquisitions branching out from its core business of supplying networking gear, namely in communications, social networking and other areas that help drive traffic over the network and increase demand for its core equipment.

The acquisition was Cisco's 119th since 1993 and follows several other major recent takeovers by the company. Cisco is in prime position to shop around, as a surge in demand from service providers snapping up sophisticated new networking gear has left the company with $21 billion in cash. Cisco is Silicon Valley's most richly valued company with a current market capitalization of about $156 billion.

In February of 2006, Cisco completed its $7.1 billion acquisition of Scientific-Atlanta Inc., the No. 2 seller of cable television boxes after Motorola Inc. The takeover was to bolster Cisco's ability to deliver content directly to consumers' homes. Cisco also said in January that it was paying $830 million in cash and stock for privately held IronPort Systems Inc., an anti-spam and antivirus security company.

The company has since made several smaller deals in the social networking and communications arenas, with company executives saying that more such deals are planned.

Santa Clara-based WebEx makes online conference and secure instant messaging systems. The company says it has 64 percent of the online meeting market, with more than 3.5 million people using WebEx each month .

Some analysts expressed concern on a conference call about the price of the deal, considering WebEx had just $380 million in revenue last year and just under $49 million in net income. Some also suggested that Cisco could have snagged the company at a much cheaper price had it acted sooner. WebEx's stock price has risen more than 43 percent since last year, based on the company's closing price before the deal was announced.

But Giancarlo said one reason the company's acquisition strategy has worked well is that it focuses on buyout targets positioned for robust revenue growth in the future.

Some industry observers said the deal is a perfect fit for Cisco's Linksys division, beefing up its small business offering.

WebEx Chief Executive Subrah Iyar said Cisco plans to preserve the company's subscription-based business model that he said has been key to WebEx's strategy in attracting new customers and driving sales.

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