NEW YORK: Cisco agreed to pay $1.2 billion for Meraki, adding technology that helps businesses manage Wi-Fi networks remotely and expanding its line-up of products for mid-sized customers.
Cisco, the world's largest maker of computer-networking equipment, is using a combination of cash and retention-based incentives to pay for the acquisition, the San Jose, California-based company said on Sunday in a statement.
John Chambers, chief executive, is seeking to capitalise on the boom in demand for smartphones and tablets in the workplace by snapping up a company that helps businesses manage security and wireless access points via the Internet.
The deal is aimed at broadening his customer base as Cisco cuts costs, shuts underperforming divisions and trims prices to fend off rivals such as Hewlett-Packard (HP) and Juniper Networks.
"The valuation reflects that Wi-Fi, as a market, has very compelling growth prospects ahead," said Erik Suppiger, an analyst at JMP Securities in San Francisco who rates Cisco market perform.
Cisco rose less than 1 per cent to $17.99 on November 16, and its shares are little changed this year.
San Francisco-based Meraki expects about $100 million in bookings this year and its employee base ballooned to 330 from 120 this year, Meraki chief executive Sanjit Biswas wrote in a letter to employees discussing the deal.
Cisco approached Meraki with the offer several weeks ago with the pitch of extending the company's reach with worldwide distribution through Cisco's sales apparatus. Cisco was attracted by Meraki's technology and financials, Biswas wrote.
The company has offices in New York, London and Mexico and was formed in 2006 by doctoral candidates from Massachusetts Institute of Technology. Its backers include Google and venture capital firm Sequoia Capital. Cisco expects the deal to close in the second quarter of next year.
Cisco, which had planned to announce the acquisition later today, inadvertently posted a blog about it yesterday, according to Karen Tillman, a spokeswoman.
The deal comes as the computer-networking industry is undergoing a shift toward software that eliminates the need for some expensive types of equipment and gives administrators more remote control over their networks.
Established rivals and startups have been putting pressure on Cisco's profit margins, forcing the company to undergo a restructuring. Chambers has cut 7,800 jobs over the past year and a half, closed businesses such as the Flip video-camera unit and eliminated bureaucratic bottlenecks in a bid to speed decision-making and focus Cisco's resources on the company's key networking businesses.