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Cisco to buy Linksys for $500 million

Cisco Systems, Inc., today announced a definitive agreement to acquire the business of privately held The Linksys Group, Inc. of Irvine, Calif. Linksys is the leading provider of home networking products with a broad line of wired and wireless products for consumers and SOHO (small office/home office) users. This acquisition represents Cisco’s entry into the high-growth consumer/SOHO networking market, which is expected to grow from $3.7 billion in 2002 to $7.5 billion in 2006 worldwide (sources: compiled from Dell’Oro Group, Synergy). Home networks allow consumers to share broadband Internet connections, files, printers, digital music, photos, and gaming, all over a wired or wireless LAN (local area network).

Under the terms of the agreement, Cisco will issue common stock with an aggregate value of approximately $500 million to acquire the Linksys business and to assume all outstanding employee stock options. The acquisition of Linksys is expected to close in the fourth quarter of Cisco’s fiscal year 2003. Cisco expects the acquisition of Linksys to be dilutive by no more than $.01 to its FY2004 GAAP EPS. Exclusive of acquisition charges, Cisco anticipates this transaction will add approximately $0.01 to its FY2004 pro-forma EPS. The transaction will be accretive to both GAAP and pro-forma earnings thereafter. The acquisition has been approved by the board of directors of each company and is subject to various closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

“Fueled by consumer broadband adoption, the home networking space has experienced mass market acceptance. Linksys has captured a strong position in this growing market by developing an extensive, easy-to-use product line for the home and small office,” said John Chambers, president and CEO of Cisco Systems. “This acquisition is a solid example of Cisco’s strategy to broaden its end-to-end portfolio of network solutions into high-growth markets such as wireless, voice-over-IP and storage area networking.”

This acquisition enables Cisco to extend its networking technology expertise in the enterprise and service provider markets into the high-growth consumer networking market. Linksys has the most extensive product line in home networking, with more than 70 products including wireless routers and access points for simultaneous sharing of broadband Internet connections, wireless network adapters and wireless print servers as well as traditional wired products such as Ethernet routers and cable modems, unmanaged switches and hubs, print servers and network attached storage for easy sharing of digital music, photo and video media files.

“This acquisition supports our vision to drive innovations into the consumer market and create next-generation home networking solutions,” said Charles Giancarlo, senior VP and general manager, product development of Cisco Systems. “The unique combination of Cisco’s networking innovations and Linksys’ consumer leadership will enable consumers to benefit from exciting new capabilities and enjoy an easy and reliable home networking experience.”

With Cisco’s networking expertise and Linksys’ user-friendly features, consumer and SOHO users will be able to build high quality networks designed for the home or small office environment. A home network enables families to better utilize their broadband Internet connections by offering the ability to share Internet access using either wired or wireless connections. Some of the benefits of a home network include:

  • Sharing broadband Internet connection among several users
  • Interconnecting computers to share files such as photos, music, documents, etc.
  • Sharing resources such as printers and storage

In a wireless network environment, all of the above functions can be performed without costly wiring or cabling using wireless technology that enable computers to communicate to each other through an access point using the IEEE 802.11a, b or g radio frequency (up to 54Mbps data rate).

Upon closing of the acquisition, Linksys’ business will be operated as a division of Cisco, and its products will continue to be sold under the Linksys brand through its existing retail, distributor and e-commerce channels. In addition, Linksys will have access to Cisco’s sales infrastructure to address international markets and the service provider channel.

The Linksys Group, Inc. was founded in 1988 and has 308 employees. The Linksys business, led by Victor Tsao, chief executive officer, will be operated as a division of Cisco reporting to Charlie Giancarlo, Sr. Vice President and General Manager, Product Development.

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