Cisco’s Great Acquisition of WebEx Targets Microsoft & Others

Cisco (CSCO-NASDAQ) and WebEx (WEBX-NASDAQ) have announced a definitive agreement for Cisco to acquire WebEx to broaden out Cisco’s collaboration and video/audio communication applications for business.  This will extend Cisco’s vision for unified communications, but the difference here is that this will increase their Small to Medium Business segment penetration much more rapidly.  WEBX claims 64% of the video conferencing market share according to the company and they claim 3.5 million users per month out of more than 28,000 customers.

Under the terms of the agreement, Cisco will pay $57.00 per share and will assume outstanding share-based awards, for an aggregate purchase price of approximately $3.2 billion.  Cisco anticipates this transaction will be neutral to its non-GAAP FY2008 earnings.  Cisco just got a deal, and while this one may be neutral to earnings this actually makes a lot of financial and business segment sense today rather than many of its other acquisitions that won’t show broadly accepted products and results for years into the future.

Now this puts Cisco right up against Microsoft (MSFT) NetMeeting.  It was already somewhat in the space after Cisco created its web video and video phone initiatives.  This will also put Hewlett-Packard (HPQ) in a spot as it has been trying to increase its "HALO" product exposure.  Another company that has been trying to gain more traction in the conferencing and collaboration space is Adobe (ADBE) via its Adobe Connect communications product.

Cisco shares are trading down 0.3% at $25.77 this morning, but this is actually a great add-on piece for the company and makes sense.  It also provides a nice premium to WEBX, which had only seen $48.57 as the multi-year high and had already more than tripled in the last few years.

Jon C. Ogg
March 15, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.