Cisco Systems, the leading network equipment company, is to acquire Scientific-Atlanta, a provider of set-top boxes and digital video systems, to deliver an end-to-end solution for broadband television services.
Both companies have an interest in the emerging market for IPTV, or internet protocol television. The acquisition of Scientific-Atlanta will marry their expertise in video compression and set-top boxes with the deep experience of Cisco in internet protocol products.
Scientific-Atlanta stock had risen over 25% over the previous month on speculation that the company would be bought.
Cisco will pay $43 per share, representing a purchase price of around $6.9 billion, or approximately $5.3 billion in cash, taking into account money Scientific-Atlanta has in the bank.
Scientific-Atlanta will become a division of the routing and service provider technology group in Cisco.
Cisco previously acquired Linksys to gain a route from its traditional data centre market direct to the consumer, which it hopes to expand through Scientific-Atlanta into a means of delivering a broader range of digital content and services to the home.
“Video is emerging as the key strategic application in the service provider triple play bundle of consumer entertainment, communication and online services,” said John Chambers, president and chief executive officer of Cisco Systems. “As consumers demand more sophisticated information and entertainment services in their home, tightly coupled applications, devices and networks will be essential. The collective strength of Linksys and Scientific-Atlanta will extend Cisco’s leadership position across the entire networked digital home.”
Jim McDonald, chairman and chief executive officer of Scientific-Atlanta said the combined strengths and resources of the two companies will position them to address more quickly the growing number of opportunities in their markets and enable them to create new products and services that might not have existed otherwise.
Scientific-Atlanta was founded in 1951 and floated in 1959. The company has more than 7,500 employees and revenues in the last financial year of $1.91 billion.
“One of the interesting elements of this acquisition is the differences in each company’s approach,” commented Amir Bassan-Eskenazi, chief executive of BigBand Networks, an independent provider of broadband infrastructure for video, voice and data services.
“Cisco has consistently leveraged IP networking standards, while Scientific Atlanta has gained its market share through more proprietary, closed system practices such as its conditional access methodologies. Reconciling such ideological differences will be fascinating during integration efforts.”
The presence of Cisco in the market could provide a mutual benefit for the ecosystem of providers of systems based on open standards.