Cisco Set to Enter Cable Field By MATT RICHTEL and KEN BELSON http://www.nytimes.com/2005/11/18/business/18cisco.html?ei=5090&en=097732d41 a8ea080&ex=1289970000&partner=rssuserland&emc=rss&pagewanted=print
Cisco Systems Inc., the Internet equipment provider, plans to announce today the acquisition of Scientific-Atlanta, a maker of television set-top boxes, for $7 billion, according to people who have been briefed on the negotiations. These people said the deal, one of the largest acquisitions ever for Cisco, was approved by the boards of both companies after the close of the stock market yesterday. The final price is expected to be around $5.3 billion because Cisco expects to acquire a cash balance of approximately $1.7 billion from Scientific-Atlanta. In the last month, Scientific-Atlanta's stock has surged 26 percent on speculation that the company would be bought. Those gains have pushed the company's market capitalization to $6.4 billion. Scientific-Atlanta's stock rose $1.15, or 2.9 percent, to $41.45 yesterday. Cisco's shares rose 15 cents, to $17.37. Sara Stutzenstein, a Scientific-Atlanta spokeswoman, said she was unable to comment on speculation about a deal. Terry Anderson, a spokeswoman for Cisco, also declined to comment. The news highlights a desire by equipment makers to take advantage of the growing convergence of Internet technology, telecommunications and entertainment. With the deal, Cisco will, for the first time, be able to sell digital television equipment that provides high-definition programming; shows and movies on demand; and an array of interactive services. Scientific-Atlanta, the second-largest provider of these set-top boxes, and Motorola, the largest, have effectively held a duopoly in this market. Both Scientific-Atlanta and Motorola have long supplied set-top boxes to cable operators like Comcast and Time Warner Cable. The boxes, though long viewed as stodgy decoders of encrypted television signals, have become far more sophisticated in recent years. Scientific-Atlanta and Motorola now produce boxes that receive high-definition programs and include digital video recorders; soon they will include DVD recorders as well. Cisco is envisioning a future that includes home entertainment systems built around a set-top box that communicates with not only the television, but also with audio equipment and a range of appliances. Cisco also sees potential growth in services that store television programming on giant servers for delivery to consumers on demand. Scientific-Atlanta is also likely to benefit from a requirement that broadcasters return their analog spectrum to the government in 2009. By then, hundreds of millions of American televisions will need the equipment to receive digital signals. "One of the nice things about set-top boxes is that they are constantly being overhauled," said Bruce Leichtman, president of the Leichtman Research Group, which tracks the telecommunications and cable industries. "The cycle never ends." A purchase of Scientific-Atlanta would be a coming-out party of sorts for Cisco as a more consumer-oriented company. The company has been best known for equipment that routes data around the Internet. These so-called routers have turned Cisco, with $24 billion in annual sales, into a bellwether stock. Cisco made its biggest push into the retail market so far in 2003, when it acquired Linksys, a big maker of Internet routers for the home, for $500 million. Still, any deal carries considerable risk for Cisco shareholders. The question of how digital equipment will merge with digital entertainment remains up in the air. As a result, there is no assurance that Scientific-Atlanta can retain its dominant position in the set-top box market. Scientific-Atlanta, based in Lawrenceville, Ga., has 6,500 employees and $1.9 billion in annual revenue. Almost all its profit comes from sales of set-top boxes and related equipment. Cisco, which is based in San Jose, Calif., has 34,000 employees. The deal ends a great deal of speculation about Scientific-Atlanta's future. The company's president, James F. McDonald, is said to be nearing retirement, and the company, which has ample cash, has largely avoided any acquisitions. People briefed on the negotiations said Scientific-Atlanta would retain its current management. Private Capital Management, run by Bruce S. Sherman, is Scientific-Atlanta's largest shareholder, with 18.2 million shares, or an 11.8 percent stake. You are a subscribed member of the infowarrior list. Visit www.infowarrior.org for list information or to unsubscribe. This message may be redistributed freely in its entirety. Any and all copyrights appearing in list messages are maintained by their respective owners.