Cisco Systems Inc plans to buy wireless telecommunications equipment maker Starent Networks Corp for $2.9 billion, betting that demand for advanced wireless equipment will grow as more consumers download videos and access the Web from mobile phones.
In its second major acquisition this month, Cisco said it would pay $35 a share in cash for Starent, a nearly 21 percent premium on Monday's closing price. Starent shares jumped about 18 percent in Tuesday trading.
For Cisco, the top U.S. network equipment maker, the deal follows the company's October 1 announcement it plans to buy video conferencing equipment maker Tandberg for $3 billion.
The Starent deal should close in the first half of 2010.
Starent makes network equipment that connects radio access networks such as 3G and 4G services with the core network of mobile phone service providers, including Sprint Nextel Corp and Verizon Wireless, a joint venture of Verizon Communications Inc and Vodafone Group Plc.
Some of Starent's equipment competes with Cisco products, as well as those of other networking gear companies such as Alcatel-Lucent SA and Huawei Technologies Co Ltd.
Hilton Romanski, Cisco vice president in corporate development, said they would decide what to do with the competing equipment, but that their product portfolios were "significantly complementary."
"We are very excited about this opportunity because it does expand the product portfolio of Cisco in mobile Internet, he told Reuters.
Cisco has forecast that global mobile data traffic would more than double every year through 2013 as more consumers buy "smartphones" that offer access to video and Internet. Such advanced features require higher speed mobile technology.
Starent's technology is also deployed in CDMA2000 and WiMax networks.
After the deal closes, Starent will become part of Cisco's service provider business, but as a new Mobile Internet Technology Group led by Starent CEO Ashraf Dahod. Cisco said the deal would probably hurt earnings, excluding items, in its 2010 and 2011 fiscal years, but should add to profit in fiscal 2012.
Analysts said the move shows Cisco Chief Executive John Chambers was serious when he told investors following the company's bid for Tandberg that there were more deals coming.
"Cisco is likely to remain aggressive in M&A and would not rule out another acquisition by year end in addition to STAR and Tandberg, in our view," said UBS analyst Nikos Theodosopoulos.
He added the move was probably negative for Cisco's smaller competitor, Juniper Networks Inc, which sells network equipment mainly to telecommunications companies.