By Cristal Cody
Tupelo, Miss., Oct. 13 - Cisco Systems, Inc. stirred the market up Tuesday with plans to acquire Starent Networks, Corp. for $35.00 a share in cash, but the leading supplier of mobile phone infrastructure solutions could attract counter offers, an analyst told Prospect News.
The acquisition is the second transaction Cisco has announced this month, and the company said it plans to keep up its aggressive deal action in the months ahead.
Also on Tuesday, bankruptcy fears grew for CIT Group, Inc. as news circulated that a debt exchange offer has not attracted bondholders' interest and the lender's chairman and chief executive officer resigned.
In other situations, privately held oil and gas exploration company Chaparral Energy, Inc. and United Refining Energy Corp. said Tuesday they will merge in a deal the companies value at $1.8 billion.
Meanwhile, equities were mixed on Tuesday.
The Dow Jones Industrial Average dipped 14.74 points, or 0.15%, to close at 9,871.06.
The Standard & Poor's 500 index fell 3.00 points, or 0.28%, to 1,073.19, while the Nasdaq Composite index closed up 0.75 of a point, or 0.04%, at 2,139.89.
Cisco dusts off deal plans
Cisco offered to acquire Starent for $35.00 a share in cash, a 21% premium to the company's closing stock price of $29.03 on Monday.
The deal, which includes outstanding equity awards, is valued at $2.9 billion.
Tewksbury, Mass.-based Starent Networks was founded in 2000 and completed its initial public offering in 2007. Telecommunication carriers use the company's equipment to link wireless networks to the internet.
The acquisition has been approved by the boards of both companies and is expected to close during the first half of 2010.
Ned Hooper, Cisco's chief strategy officer, said on a conference call with analysts on Tuesday that the deal includes a 3% breakup fee if Cisco walks because of a competitive offer for Starent.
Alex Henderson, an analyst with Miller Tabak & Co., LLC, told Prospect News on Tuesday that the bid is reasonable but leaves a chance for improvement.
"I don't think it's particularly expensive," he said. "There's room for other people to be interested in this. In fact, we suggest a 25% probability someone will come in and make an offer for them. This is a strategically valuable asset for a number of other companies, [including] Ericsson and Juniper [Networks, Inc.], that need technology to be competitive in the data services sector."
San Jose, Calif.-based Cisco may not be outbid, though. The company earlier this month also announced it will acquire Norwegian videoconferencing equipment maker Tandberg ASA for $3 billion.
Hooper said Cisco plans to keep up its deal action.
"We will continue to be aggressive driving acquisitions," he said. "We feel good about our flexibility in the U.S. The Tandberg acquisition comes entirely from offshore cash. And we also feel very confident in our ability, if we were to choose, to tap into lines of credit and the debt markets as well."
Starent shares added $4.88, or 16.81%, to close at $33.91. The stock has traded from $7.30 to $34.75 over the past year.
Cisco shares rose 11 cents, or 0.45%, to $23.89.
Tandberg shares fell 0.46% to 152.80 Norwegian kroner.
Shares of Sunnyvale, Calif.-based Juniper fell 58 cents, or 2.08%, to $27.34, while shares of telecoms equipment maker Ericsson lost 1.54% to close at 70.10 kroner.
CIT scrambles for solutions
Shares of CIT slipped 12 cents, or 11.54%, to close Tuesday at 92 cents after the lender said in a statement that Jeffrey M. Peek will resign his posts on Dec. 31.
The New York-based lender said earlier this month that the company would enter a prepackaged bankruptcy if a debt exchange to reduce $5.7 billion of debt did not work.
The exchange offer expires on Oct. 29.
Sameer Gokhale, an analyst with Keefe, Bruyette & Woods, Inc., said in a research note released Tuesday to Prospect News that the company's bankruptcy risks remain high.
"According to the company's SEC filing, CIT has roughly $2.3 billion of cash at the parent company at Aug. 31. In the remaining four months of calendar year 2009, the company has unsecured debt maturities of $1.6 billion including $800 million of notes which mature in the first week of November," Gokhale said.
"CIT expects that if these maturities were to be repaid at par, the corporate cash balance would fall below $1 billion, which would be inadequate to conduct normal operations," he said.
Chaparral to go public
Chaparral Energy and United Refining Energy said the transaction is expected to close by Dec. 11.
The combined company will be named Chaparral Energy, Inc., and shares are expected to trade on the New York Stock Exchange.
The $1.8 billion value assigned to the deal by the companies assumes a stock price of $10.00 a share for the combined company.
Under the terms, Chaparral shareholders will exchange their equity stake for 58 million shares in the combined company and receive $300 million in cash at closing.
The deal must receive approval from United Refining shareholders and warrantholders and is based on the refinancing of Chaparral's existing revolving senior secured credit facility.
United Refining Energy is a special-purpose acquisition company that was formed in December 2007 and has about $452 million in trust as of Sept. 30.
United Refining Energy units closed Tuesday at $10.35, up 22 cents, or 2.17%.
Mentioned in this article:
Cisco Systems, Inc. Nasdaq: CSCO
CIT Group, Inc. NYSE: CIT
| Ericsson Stockholm: | ERICB
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| Juniper Networks, Inc. | Nasdaq: JNPR
|
| Starent Networks, Corp. | Nasdaq: STAR
|
| Tandberg ASA | Oslo: TAA
|
| United Refining Energy Corp. | NYSE Amex: URX-U
|
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