Cisco Ups Acacia Acquisition Price
After updating our model for the increased purchase price, we are maintaining our $48 fair value estimate for Cisco.
Narrow-moat Cisco Systems (CSCO) has agreed to purchase Acacia Communications (ACIA) for $4.5 billion, or about $115 per Acacia share in cash. This is an update from the original July 2019 proposal worth $2.6 billion. Earlier this year, Acacia terminated the prior merger after stating that Cisco did not obtain the proper approval from the Chinese government for the deal before Jan. 8. After the termination, Cisco initiated legal action, claiming it had received the required approval, and Acacia countersued. The updated deal is expected to close in the first quarter of fiscal 2021. After updating our model for the increased purchase price, we are maintaining our $48 fair value estimate for Cisco and see the shares as slightly undervalued.
With Acacia, Cisco gains critical optics capabilities. Optics, including the pluggable form factor, have become an increasingly important part of expanding transmission speeds and the capacity within and outside of data centers. Acacia is a key optics supplier to hyperscale data center vendors, communication service providers, and enterprise data center operators. Cisco said it remains committed to serving Acacia’s clients, some of which could be key competitors in the networking market. We expect Cisco to tightly integrate optical capabilities into its products and strive for upselling opportunities in areas such as cloud data centers and 5G networks. In the previous agreement, Acacia was showcasing strong year-over-year revenue growth and bottom-line improvements. We believe these factors, along with not wanting to drag out a lawsuit and sour the relationship, and the importance of having robust optical offerings for Cisco, led to the increased acquisition price. After the deal closes, we expect Cisco to share information on the potential growth trajectory it hopes to gain from this sizable purchase.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Mark Cash does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.