U.S. News

Cisco to Pay $3.2 Billion for WebEx

Cisco Systems said Thursday that it has agreed to acquire the online meeting company WebEx Communications for about $3.2 billion in cash.

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

Shares of WebEx soared $10.53, or more than 22%, to $56.73 in early trading on the Nasdaq Stock Market. Cisco shares lost 6 cents to $25.79 on the same exchange.

Cisco said the acquisition has been approved by both boards and is expected to close in the fourth quarter of fiscal 2007. Cisco said it expects transaction to have an immaterial 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.

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

Santa Clara-based WebEx makes applications that enable online conferences and secure instant messaging. The company says it commands 64% of the online meeting market, with more than 3.5 million people using WebEx services every month for online communications.

Cisco said the acquisition will allow it to tap into the increasingly lucrative market for business communications over the Internet.

"As collaboration in the workplace becomes increasingly important, companies are looking for rich communications tools to help them work more effectively and efficiently," Charles H. Giancarlo, Cisco's chief development officer, said in a statement. "The combination of Cisco and WebEx will deliver compelling solutions accelerating this next wave of business communications."

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 rose more than 56% since last year, based on the company's closing price before the deal was announced.

However, some industry observers said the deal is a perfect fit for Cisco's Linksys division, beefing up its offerings for small businesses. The deal also will also give WebEx access to larger business customers and the opportunity for expanded growth worldwide, said Roger Kay, president of Endpoint Technologies Associates.

"From Cisco's point of view, it makes some sense: You're beefing up Linksys, you're grabbing a player that can help increase the value of the Linksys franchise, and you're a grabbing a player that's already well established in markets you've assessed will have high growth rates," Kay said.