Friday, November 30, 2012

Cisco Systems, Inc. (NASDAQ:CSCO) to buy Cariden for $141 mln

There are reports that networking infrastructure provider Cisco Systems, Inc.(NASDAQ:CSCO) plans to buy a privately held firm called Cariden for $141 million.

The acquisition, which will be made in a mix of cash and retention incentives, is expected to close during the company’s second quarter. Cariden will be part of Cisco's Service Provider Networking Group.

The Street has greeted the news positively. Jess Lubert of Wells Fargo maintained his Outperform rating on the stock and said that Cariden’s portfolio would complement Cisco’s existing business well.

"Cariden’s solid early operating metrics which include 50% CAGR over the past five years, 95%+ renewal rates, and wins with multiple tier1 providers. Separately, we believe Cisco should also benefit from Cariden’s MPLS expertise, which is a dominant WAN technology that may help Cisco better compete as the routing and optical layers converge.”

According to Lubert the acquisition will boost Cisco's gross margins and offset the pressure from lower margin businesses and pricing.

"We note Cisco entered the January quarter with roughly $7.5 billion in U.S. cash, which along with strong cash generation appears more than sufficient to support the recent M&A activity as well as the dividend and share repurchase plans,” he said.

Brian Marshall of ISI gave positive feedback about the transaction.

 “Our research has consistently highlighted the increasing importance of management/optimization software for networks and we believe the acquisition reflects CSCO’s desire to add more software-oriented capabilities. We also believe Cariden’s orchestration software can complement CSCO’s efforts in software-defined networking (SDN).”

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