Cisco to Buy Acacia Communications for About $2.6 Billion -- 2nd Update

By Sarah E. Needleman 

Cisco Systems Inc. has agreed to buy equipment manufacturer Acacia Communications Inc. for about $2.6 billion, as it looks to serve rising performance demands on networking gear from data center operators and telecom-service providers.

Cisco said Tuesday it will pay about $70 in cash for each Acacia share outstanding, a 46% premium to Acacia's Monday closing price of $48.06.

Shares of Acacia surged more than 35% in morning trading. Cisco's stock traded 0.2% higher.

Acacia, a Maynard, Mass.-based maker of optical interconnect technologies like modules and semiconductors, derived roughly 14% of its $339.9 million in revenue last year from Cisco. Acacia was formed in 2009 and went public in May 2016.

Cisco said Acacia's technology will enable users of its hardware to drive more data over high-speed internet networks. Cisco executives said the company is looking to take advantage of a growing trend of customers migrating to pluggable technology from chassis-based systems. Pluggable modules give network operators a more efficient way to increase the data that runs over the networks.

The deal is the latest in a string of acquisitions Cisco has made in the optics space, including Lightwire Inc., CoreOptics Inc. and Luxtera Inc. It is also the company's largest purchase since 2017.

"It shows them really looking to expand their networking business from the optical as well as the software side," Wedbush analyst Dan Ives said. "And with 5G around the corner and more and more data running through the pipes, Cisco is starting to position the portfolio accordingly."

By bringing suppliers in-house, Cisco also gains more control over the networking food chain, Mr. Ives said. "This is [Chief Executive Chuck] Robbins and company going on the offensive around M&A," he said.

Cisco declined to comment on whether it competed against other bidders for Acacia.

The San Jose, Calif., company has grown modestly in recent years. One of Silicon Valley's oldest members, Cisco posted $49.33 billion in revenue in the year ended July 28, 2018, up 2.7% from the prior year. Revenue is projected to exceed $50 billion this year.

The networking giant has continued to grow over the past two quarters, even as it has raised prices in response to tariffs the Trump administration placed on U.S. imports of Chinese-produced goods. Duties of 10% were assessed on a range of imports last fall, and that percentage was later raised to 25% in May.

Cisco said the acquisition will have to go through standard regulatory processes, including in China. It is expected to be completed during the second half of Cisco's 2020 fiscal year.

--Colin Kellaher contributed to this article.

Write to Sarah E. Needleman at [e-mail]

(END) Dow Jones Newswires

July 09, 2019 10:45 ET (14:45 GMT)

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