Aiming to expand its mobile Internet offerings, Cisco Systems will acquire Starent Networks for US$2.9 billion, the companies announced Tuesday.
It’s a move that one Canadian financial analyst says may start a fight for Ottawa’s Bridgewater Systems. Starent and Bridgewater are big customers of Verizon Communications in the U.S., National Bank Financial (NBF) analyst Kris Thompson wrote in a research note Tuesday morning. In addition, the two companies are technology partners.
“We’d expect Cisco to take a hard look at Bridgewater to help cement its position at Verizon with the Starent acquisition. In addition, he wrote, Nokia Siemens Networks “should be taking offensive steps to acquire Bridgewater or it could fall into the hands of a competitor.”
Bridgewater, whose chairman is entrepreneur Terry Matthews, makes subscriber management software that lets mobile service providers personalize and and deliver e-commerce, video, and social networking to customers.
Starent, based in Tewksbury, Mass., makes IP-based infrastructure technology designed to help carriers scale up their mobile networks. Starent’s technology is used in CDMA2000, UMTS/HSPA and WiMax networks.
The deal calls for Cisco to pay $35 per share in cash for each share of Starent. The acquisition, subject to regulatory review, has been approved by the boards of directors of both companies and is expected to close during the first half of 2010.
In his report, Thompson wrote that until today NBF thought that Starent and Juniper Networks were going after a Bridgewater competitor, privately-held Camiant Inc. of Marlborough, Mass.
Verizon Wireless is doing some testing with Camiant for the carrier’s LTE network. Juniper is a Bridgewater competitor for subscriber management solutions, Thompson wrote, while Starent is a Bridgewater partner. Until this morning National Bank Financial thought that Nokia Siemens Networks was the most likely candidate to acquire Bridgewater in its efforts to land Verizon Wireless LTE business.
Thompson wrote that NBF believes Cisco was trying to win the Verizon account but was unsuccessful. Assuming Cisco gets Starent, NBF thinks it should be looking at Bridgewater next to shore up the Verizon business.
Verizon and AT&T are moving to adopt LTE for their 4G wireless technology. Verizon hopes to start LTE trials before the end of the year and begin commercial deployments towards the end of 2010, while AT&T plans commercial LTE deployment in 2011.
While having a foot in the door with WiMAX, a competing 4G wireless technology, Cisco has been making overtures to address the LTE market.
“LTE is definitely the 4G technology of choice,” says Laurence Swasey, senior analyst at wireless market research firm Visant Strategies. “The most advanced wireless network are LTE. This [acquisition of Starent] is a great move by Cisco because not many people have deployed mobile WiMAX, it hasn’t gotten the play. It’s a good move to make sure they don’t miss the LTE ride.”
Cisco claims that its maneuvers are “access agnostic” rather than a hedge on an earlier bet on WiMAX that may not pay off expected dividends. That may be where Starent fits in – its products have been deployed by over 100 mobile operators in 45 countries.
In any event, Cisco says the Internet is at “an inflection point” as IP-enabled smartphones and other connected mobile devices gain rapid acceptance. According to Cisco’s own research, global mobile data traffic is expected to more than double every year through 2013.
Under terms of the agreement, Cisco will pay $35 per share in cash in exchange for each share of Starent Networks and assume outstanding equity awards for an aggregate purchase price of approximately US$2.9 billion. The acquisition has been approved by the boards of directors of both companies.
The acquisition is expected to close during the first half of calendar year 2010; however, the close date is subject to customary closing conditions and regulatory reviews.
Prior to the close, Cisco and Starent will continue to operate as separate companies. Upon completion of the transaction, Starent will become the new Mobile Internet Technology Group led by Starent President and CEO Ashraf Dahod. He will report to Pankaj Patel, senior vice-president and general manager of Cisco’s Service Provider business.
Starent was founded in 2000 and completed its initial public offering in 2007. The company has approximately 1,000 employees worldwide. For the year ended Dec. 31, 2008, Starent Networks reported revenue of US$254.1 million, up 74 per cent from the prior year.
—With files from Howard Solomon, Network World Canada and Jim Duffy, Network World U.S.
