Cisco had data, Cisco had voice, and what it needed was video to complete the triple play. So they bought Scientific Atlanta for $6.9 billion.
Cisco will pay $43 per share in cash in exchange for each share of Scientific-Atlanta, and assume outstanding options, for an aggregate purchase price of approximately $6.9 billion, or approximately $5.3 billion net of Scientific-Atlanta’s existing cash balance.
The reasons for the deal are many, the most important being that the company the size of Cisco might have a tough time growing revenues ($27 billion – fiscal 2006) in line with Wall Street’s double digit expectations without acquisitions. Scientific Atlanta will have sales of around $2.1 billion in fiscal 2006) This is the kind of deal that gives shares a bit of lift. As you might have noticed Cisco has been range bound for years now.
From a strategic point of view, Cisco needed to fill out its cable portfolio with customer premise gear. Scientific Atlanta with its set-top boxes is a good way to get deeper into cable networks. The company has supplied head-end gear and routers to companies like Comcast for a while now. The set-top box is turning out to be the trojan into digital homes. Combine this with Linksys, and things can certainly get interesting!
Zatz Not Funny writes: “. So how long before we see a cable company DVR with built-in cable modem, wireless router, and UPnP server?”
Motorola, while well known as a wireless company, is a massive player in the cable business, largely due to its General Instrument acquisition. It had the most complete offering so far, but now will have to contend with Cisco on a more serious level. Same goes for Microsoft which has been trying to make a place for itself in the IPTV networks. Thanks to Scientific Atlanta, Cisco can now start calling on Telecoms building out their Telco TV networks as well. SBC was supposedly working with Scientific Atlanta anyway. BellSouth is another Cisco partner that could now take SA more seriously.
More from The New York Times
What Cisco Gets from Scientific Atlanta: End-to-End Subscriber Systems, DVR & Non-DVR Set tops, HD & standard definition Set tops, System & Client Software, Cable HSD/Voice Modems, Home Networks, HFC Networks, Satellite Systems, Head-ends, and Network Manage