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Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study #4

Cisco Acquiring Scientific-Atlanta

Dear Colleague,

Today's case study looks at Cisco Systems, Inc. November 18th announcement that it will acquire Scientific-Atlanta, Inc. The transaction is expected to close in the third quarter of Cisco’s fiscal year 2006 (to close by April 30, 2006).

Network giant Cisco Systems, Inc. (NASDAQ: CSCO) has annual revenues of over $25 billion.

Scientific-Atlanta (NYSE: SFA) supplies set-top boxes and other video components to the Cable TV industry. Trailing Twelve Month (TTM) revenues were $1.95 billion. Scientific-Atlanta was founded in 1951 and held its Initial Public Offering (IPO) on July 29, 1959. The company has more than 7500 employees.

Under the terms of the agreement, Cisco will pay $43 per share in cash in exchange for each share of Scientific-Atlanta, and assume outstanding options, for an aggregate purchase price of approximately $6.9 billion, or approximately $5.3 billion net of Scientific-Atlanta's existing cash balance. This is 2.72x revenue and 12.25x EBITDA (Multiples are against trailing twelve months numbers and the enterprise value of $5.3 million).

Cisco anticipates this transaction will be neutral to its FY2006 earnings, slightly accretive to its non-GAAP (pro forma) FY2007 earnings, and will be financed with a combination of cash and debt.

Following the announcement on November 18, Cisco's ending share price through November 29th increased by slightly less than 1%. Daily transactions on the day of the announcement exceeded 137 million shares versus 47 million the day before. Scientific-Atlantic experienced a 2% increase in share value over the same period. The daily transactions just prior to the announcement were in the 4 million range and exceeded 20 million the day of the announcement.

John Chambers, president and chief executive officer of Cisco Systems, stated, "Video is emerging as the key strategic application in the service provider triple play bundle of consumer entertainment, communication and online services. The combination of Cisco and Scientific-Atlanta brings unmatched experience and innovation in delivering large-scale video systems and networks, and the addition of Scientific-Atlanta further extends Cisco's commitment to and leadership in the service provider market. Moreover, Cisco's international presence and IP leadership will also create strategic synergies that accelerate the combined growth opportunity."

Jim McDonald, chairman, chief executive officer and president of Scientific-Atlanta, said, "We believe that this combination of Cisco and Scientific-Atlanta will benefit our shareholders, our customers and our employees. The combined strengths and resources of our two companies will position us to address more quickly the growing number of opportunities in the markets we serve and enable us to create new products and services that might not have existed otherwise."

The acquisition has been approved by the board of directors of each company and is subject to various standard closing conditions, including approval under Hart Scott Rodino and similar laws outside the U.S. and by the shareholders of Scientific-Atlanta.

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