Cisco's Acquisition

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Cisco’s Acquisition of
WebEx & ScientificAtlantic
CCMA Group Project

61310368 Gaurav Sethi
61310829 Karan Vora
61310690 Rajeev Mohankumar
61310249 Sayan Dutta
61310708 Sumit Gupta

Cisco’s Acquisition of WebEx & Scientific-Atlantic

Cisco – The Acquisition Giant
Executive Summary
An American multinational telecom networking giant headquartered out of San Jose, Cisco has been a behemoth in its industry for decades. Majorly growing through acquisitions, it has had more hits than misses in identifying the right companies to acquire and nurturing them to become an acquisition specialist. So much so, it is now difficult to decide what Cisco is better at: acquisitions or telecom networking? But that does not mean everything that the company has touched have turned into gold. A company which was formed as a start-up and got acquired, the journey of the company has become a legend, albeit an incomplete one in Silicon Valley folklore. So what lies beneath the success? As John Chambers, CEO of Cisco would famously opine, they do not acquire companies but acquire people. There might be M&A Masters working tirelessly behind every acquisition, but in Cisco, M&A led by a team of cross functional specialists have made acquisitions a daily routine. Practice does make a company perfect!

Two acquisitions of Cisco were chosen to compare and contrast the factors that led to success of one and failure of the other.
Successful one was the acquisition of WebEx – an on-demand online meeting and collaboration platform in 2007, which was a good complement to Cisco’s vision of Unified Communications.

Deal: Cisco commenced a cash tender offer to purchase all of the outstanding shares of WebEx for $57 per share and would assume outstanding share-based awards, for an aggregate purchase price of approximately $3.2 billion, or approximately $2.9 billion net of WebEx's existing cash balance.1 The consideration also includes assumption of options valued $239.85 million. In the event of termination, WebEx will pay Cisco a termination fee of $77 million.2 Following the close of the transaction, WebEx will become a part of Cisco's Development Organization while maintaining its unique business model.

1
2

http://newsroom.cisco.com/dlls/2007/corp_031507b.html
https://www.capitaliq.com/ciqdotnet/Transactions/transactionDetail.aspx?transactionId=33215751&companyId=106065

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Cisco’s Acquisition of WebEx & Scientific-Atlantic

Unsuccessful one was the acquisition of Scientific-Atlanta - a leading provider of set-top cable boxes, end-to-end video distribution networks and video system integration. Cisco hoped to combine the set-top box with Linksys home router business to offer pay-TV service providers a premium product for voice and video.

Deal: The deal was valued at approximately $6.87 billion including the assumption of cash. Cisco paid $43 per share in cash in exchange for each share of Scientific-Atlanta, and assumed outstanding options, for approximately $5.3 billion. Following the close of the transaction in Feb 2006 Scientific-Atlanta became a division of the Routing and Service Provider Technology Group.3 The deal was sealed through 100 percent acquisition of equity stake. The acquisition was financed with a combination of cash and debt. In the event of termination, a termination fee of $170 million was deemed to be payable by Scientific-Atlanta to Cisco Systems. Lehman Brothers Inc. provided a fairness option to Scientific-Atlanta Inc. on the deal.

However, Cisco failed to figure out how fast the home router market would get saturated and the set-top box would be replaced by internet connected TVs. 4

We feel that considering the technology and market uncertainty that existed at the time of this acquisition, Cisco should have looked at the following alternative options regarding ScientificAtlantic. 1. Stick to acquisition, but value at par: Since Cisco has a tradition of growing by acquisitions, it...
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