Cisco Snaps Up Starent for $2.9 Billion

SAN JOSE ( TheStreet) -- Cisco ( CSCO) has thrown down $2.9 billion to buy Starent Networks ( STAR) in an attempt to boost its mobile Internet story.

The Tewksbury, Mass.-based firm had recently been touted as a potential Cisco acquisition target, underlining the company's desire to tap telecom firms' next-generation networks.

Under the terms of the deal, Cisco will pay $35 in cash per Starent share, and assume aggregate equity awards for a total purchase price of $2.9 billion. Starent's shares closed at $29.03 Monday, which means that Cisco is paying a 20% premium for the mobile content specialist.

With consumers sending more and more data through smartphones, Cisco is clearly looking to open up new revenue within service provider data centers. Starent sells IP-based mobile infrastructure products for building the likes of WiFi and WiMax networks, and lists Sprint ( S), Verizon ( VZ) and Vodafone ( VOD) amongst its customers.

"We are very pleased that Starent Networks will be joining the Cisco team, and we believe their products and engineering talent will greatly benefit our service provider customers as they build out their Mobile Internet offerings," said Cisco CEO John Chambers, in a statement released before market open.

The Starent deal also comes hot on the heels of Cisco's $3 billion acquisition of Norwegian video conferencing specialist Tandberg. With the market already saturated with its switches and routers, Cisco has been shrewdly targeting new areas and laying the foundations for a broader rebound in IT spending.

Set against this backdrop, the networking behemoth is seen as an attractive stock with upside potential. The Tandberg deal barely made a dent in Cisco's $29 billion dollar cash haul, and the company is well-positioned for the anticipated economic turnaround.

The Starent acquisition, which has been approved by both firms' directors, is expected to close in the first half of 2010. Once the acquisition has been completed, Starent will become Cisco's new Mobile Internet Technology Group, lead by its current CEO Ashraf Dahod. The new unit will be part of Cisco's Service Provider Business, according to the company's statement.

Cisco expects Starent to be dilutive to non-GAAP earnings in fiscal years 2010 and 2011, and accretive to non-GAAP earnings in fiscal year 2012.

Cisco shares rose 28 cents, or 1.16%, to $24.06, shortly after market open, as the Nasdaq crept up 0.2%

-- Reported by James Rogers in New York

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