Cisco to Buy StrataCom in $4-Billion Deal

Cisco Systems Inc. will buy StrataCom Inc. for $4 billion in the largest takeover ever in the computer network equipment business, the companies said Monday.

Cisco said the purchase will allow it to provide all the networking switches for voice, data and video communications across public computer networks such as the Internet and private ones.

The acquisition would give Cisco a lead over its nearest competitors in a market niche that’s been growing at the rate of 90% a year, analysts said.

“Cisco didn’t have anything” in this product area, said Tom Golway, an analyst at GCE Consulting, a New York-based firm that advises companies on technology. “This will fill out Cisco’s product lines nicely.”

San Jose-based Cisco agreed to pay one of its shares, or $50 worth of its stock, whichever is higher, for each StrataCom share. StrataCom, also based in San Jose, has 81 million shares, making the deal worth slightly more than $4 billion at the $50 price.

StrataCom stock soared $9.188 to close at $47.938, a 25% increase, in Nasdaq trading. Cisco shares closed down 87.5 cents at $46.88, also on Nasdaq.

With the network equipment companies growing 30% to 50% a year, Cisco hopes to see a return from the purchase quickly.

“By combining our networking technologies with those of StrataCom, Cisco will become the first vendor to provide advanced network infrastructure for the Intranet and Internet environments,” said John Chambers, Cisco president and chief executive.

Cisco is already the largest maker of machines that link computers. It had revenue of $1.9 billion for the fiscal year ended July 1, and $1.5 billion for the first six months of the current fiscal year.

The companies expect to complete the merger by the end of June if it wins approval from regulators and StrataCom shareholders.

Cisco’s expertise is in making equipment to link computers within offices.

StrataCom’s specialty in what is known as frame-relay technology for moving data has become more in demand, pushing its sales from $154 million for fiscal 1994 to $332 million for fiscal 1995. Its so-called switching equipment is used to send computer, voice and video data between the computer networks of two offices.

The equipment lets companies with far-flung offices connect their networks into Intranets. Through four acquisitions in the last year, the company has bought expertise in the wide-area networking business.

The deal is the latest in a series of mergers that have left the fast-growing network equipment business with four major companies, including Cisco. The others are 3Com Corp., Bay Networks Inc. and Cabletron Systems Inc.

The industry’s previous biggest deal was the $1.25-billion merger of Wellfleet Communications Inc. and SynOptics Communications Inc. that formed Bay Networks in 1994.

Chambers said the deal will make Cisco the first company to provide equipment that gives complete connections across different kinds of computer networks.

Said StrataCom President and Chief Executive Dick Moley: “In addition to having complementary technologies and a shared vision of future networking architectures, Cisco and StrataCom . . . thrive on the dynamic networking market.”

Moley would become a director of Cisco under the deal.