Business & Investment

Cisco vows to go to court after Acacia tries to cancel the $ 2.6 billion merger

Cisco Systems Inc. The $ 2.6 billion merger with Acacia Communications Inc. proposed by Acacia could be destined for court after Acacia announced on Friday that it would terminate the deal because of Cisco’s objections.

+ 9.87%

On Friday morning, it announced that it would terminate the merger agreement with Cisco.
+ 0.22%

By Friday, when the deadline was extended, the deal had not yet been approved by Chinese regulators. Cisco opposed Acacia’s position and announced on Thursday that China’s State Administration of Market Regulation (SAMR) had informed that Cisco’s submission was “sufficient to address related competitive concerns.” Insist on.

“Companies always try to get out of a merger, which usually has nothing to do with what they cite as a reason to get out of a merger,” said Larry Downs, project director at the Georgetown Business and Public Policy Center. I will.

Cisco is looking for a court resolution on the dispute and a court order requiring Acacia to complete the transaction. Whether Acacia’s reasons are considered valid by the courts include when Chinese regulators provided approval and whether the approvals they provided are considered sufficient with respect to the terms of the merger agreement. It depends on the facts, Downs said.

Raymond James analyst Simon Leopold pointed out the ambiguity of the information disclosed so far.

“Cisco has been notified by SAMR that the agency has determined that Cisco’s submission is” sufficient to address the relevant competitive concerns. “Is this really approved? Leopold asked in a note to the client.

Acacia stated in a Securities and Exchange Commission filing that she was not entitled to a $ 120 million split fee in accordance with company regulations. First merger arrangement, Announced in July 2019. The split fee was subject to several conditions, including Cisco’s failure to waive the “requirements for obtaining regulatory approval to complete the merger.” Cisco has abandoned that requirement and Acacia did not receive a split fee at the end of the transaction.

Martin Gainer, a professor of economics at Carnegie Mellon University’s Heinz College, said the dispute between Cisco and Acacia could eventually be brought to justice or the company could reach a settlement in advance. The details of the settlement are usually not disclosed, he said.

According to Downs, it’s hard to know how aggressively Cisco will push for a successful merger. “If they think they’re doing a better deal than when the merger was announced, they might pursue it in a proceeding,” he told MarketWatch.

In the session on Friday, Acacia’s share price rose 9.9%, while Cisco’s share price rose 0.2%.

“It is Cisco’s greatest interest to complete the Acacia transaction on its original terms, but given that Acacia is currently trading over $ 80 per share, it was offered $ 70 per share. I’m not sure if it can be completed at a takeaway price, “Evercore ISI analyst Amit Daryanani wrote in a note to clients. (In the Friday session, it traded as high as $ 86 before closing at $ 79.60.)

He rates Cisco’s share price outperforming at a target price of $ 54.

“The decision to leave Acacia may reflect several possible factors, including efforts to renegotiate the terms,” ​​wrote Leopold of Raymond James. He thought the deal made sense for Cisco, but said it could be another victim of US-China tensions.

“China rarely wins by approving a deal and can kill it by withholding / deferring approval,” he wrote. “Given Huawei’s limitations, ZTE Acacia’s main customers, Will be more important for China. It makes little sense to allow ZTE suppliers of materials to become part of the larger global competitors in the West. “

He is above Cisco’s share price, with an average of 30 Dow Jones Industrial Averages up 14% in the last three months.
+ 0.18%

Added 10%.

Acacia hasn’t spoken directly to investors since the 2019 deal announcement, but the company is planning a conference call on Monday at 5 pm EST.

Cisco vows to go to court after Acacia tries to cancel the $ 2.6 billion merger Cisco vows to go to court after Acacia tries to cancel the $ 2.6 billion merger

Back to top button