Cisco Buying WebEx

Updated from 9:53 a.m.

Cisco (CSCO Quote) agreed to acquire WebEx (WEBX Quote) for $3.2 billion in cash.

WebEx shareholders will get $57 a share, a 23% premium to Wednesday's closing price. WebEx shares rose 3% in early trading Thursday before they were halted for the announcement of the deal, which was first reported earlier by TheStreet.com. Shares rose $10.19, or 22%, to $56.39 when trading resumed.

The deal gives video conferencing expertise to Cisco and will help power the networking giant's effort in so-called telepresence. CEO John Chambers has predicted that this virtual conferencing business will be a $1 billion sales opportunity in the next couple of years.

"Cisco sees this as a way to sell video; that's the key for the next major leg of growth," says a hedge fund manager who is long Cisco.

Internet video conferencing is looming as part of a larger unified communications push that will be a key growth area for Cisco.

"This is clearly a move against Microsoft (MSFT Quote)," says the hedge fund manager. "It's going to be a big negative for other players like Avaya (AV Quote), and potentially bad for Radvision (RVSN Quote) and Polycom (PLCM Quote)."

A Radvision bull says this isn't necessarily bad for the video system supplier. He points to an announcement this week that has Radvision supplying new products to Cisco in the second half of this year.

Cisco has set a 9:30 teleconference to discuss the deal.

Cisco fell a nickel to $25.80.

Watch an interview with Scott Moritz on this news event.