Cisco pays unprecedented $7bn for hi-tech US firm

CISCO SYSTEMS, the global leader in supplying router equipment for managing Internet traffic, may have come close to breaking the bank in agreeing overnight on Tuesday to pay $6.9bn in stock for Cerent, a California-based telecoms networking start-up.

It is believed to be the highest price ever paid for a privatelyowned technology company. Cerent had sales of only pounds 6m over the last two years, although demand for its devices, which route telephone calls and Internet traffic on and off fibre-optic lines, will see that figure hit pounds 200m next year, with growth set to continue.

"This is unbelievable, and unprecedented," said Greg Rossmann, a managing director of the technology investment banking firm Broadview International. "It is truly reflective of the expectations for how the Internet infrastructure is going to be forced to evolve to support the demands of e-commerce."

Cerent is widely perceived to have a head start in an expanding sector. Its equipment acts as a link between long-distance communications lines and local telephone and data networks, helping to reduce congestion and allow phone companies to move more types of data faster.

Cisco began by making the routing devices that direct traffic on the Internet. Since then it has built a broad-based networking business via 40 acquisitions using its highly valued stock as a powerful takeover currency. Its market capitalisation of nearly pounds 140bn makes it the third biggest US company after Microsoft and General Electric.

Investors, who have put about pounds 50m into Cerent, will gain huge windfalls. For example, Kleiner Perkins Caufield & Byers, a Silicon Valley venture capital firm, invested pounds 5m for a near-31 per cent stake that is now worth pounds 1.3bn in Cisco shares.

Another prominent investor is Michael Dell, the PC retailing billionaire, who bought pounds 18m of Cerent convertible notes last month. However, the terms under which the notes can be converted into shares have not been disclosed.

Mr Dell's interest in the firm reflects his long-term focus on Internet e-commerce and telecoms network infrastructure companies. His own company, Dell Computer, pioneered the emerging e-commerce market by letting customers configure and order PCs via the web.

Indeed, shares of infrastructure companies such as Cisco, Nortel and Lucent have gained, even as actual Internet stocks have been hammered in recent weeks. The resilience is the result of data traffic volumes tripling every three months due to the explosion of computer traffic generated by the Internet.

This has led to a conviction among investors that telecoms carriers will be spending hundreds of billions of pounds in the next decade to rewire the globe.

Start your day with The Independent, sign up for daily news emails
News
Jeremy Clarkson
people
News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own