Thursday, May 28, 2009

Cisco

The rumor of Cisco buying UT has been around for years. Recently, Techbroker (a shareholder who has been following UT for a while and who diligently scans the Chinese news regarding UT) posted the following link regarding a potential Cisco acquisition of UT.

http://translate.google.com/translate?js=n&prev=_t&hl=en&ie=UTF-8&u=http%3A%2F%2Fwww.c114.net%2Fnews%2F128%2Fa414554.html&sl=zh-CN&tl=en&history_state0=

Lets look at the reasons Cisco may acquire UT.

1. Previous working relationships - http://www.unstrung.com/document.asp?doc_id=48512 UTs Alameda office is near Cisco's home campus as well.

2. India - Cisco's CTO is Indian (also known as a visionary herself) and Cisco has made announcements year after year of their investments in India (a couple of billion on one article). Furthermore, the Indian government has security issues with working with Chinese companies so Cisco would be a more ideal acquirer.

3. Acquisition/Expansion - Cisco's acquisition of Scientific Atlanta for $6.9b, Linksys, Pure Digital shows they are willing to spend money to get closer to the consumer/home entertainment space. Pure Digital was bought for $590m. http://gigaom.com/2009/03/19/cisco-to-buy-pure-digital-for-590m/

4. Handsets - UT still has the handset capabilities and relationship with PCD. If Cisco wants to get into the handset space (they did have the "iphone" trademark), this would be a cheap way for Cisco to experiment and build a Cisco phone.

5. Telepresence - Cisco is into the video conferencing space and UT technology would compliment their products.

6. Networking - Again, UT/Cisco ip based products should be complementary and Cisco is looking to expand into new markets.

7. Tax losses - Cisco would be able to take advantage of UT losses in the US and overseas.

8. PSDN - UT announced winning 40% of the tender beating Cisco/Starent. The Starent lawsuit may be of value to Cisco as well. Blackmore and UT have a tendency to build up businesses for a potential sale (back in 2007 with the articles of how iptv was progressing, the Chinese profits, and lately with PCD and just recently the core business doing well).

9. China foothold - What a tremendous acquisition to pick up the iptv assets/contracts in China as well as the Hangzhou building and Chinese employees (with US-backed R&D based on Ying Wu's template from Bell Labs (Lucent))!

10. FMC/Wifi - Again these technologies may complement the Linksys division from Cisco (sorry, not a techy so others can explain the tech better).

11. IPTV - The crown jewel of UT can be bought for pennies on the dollar that UT invested in it.

PRICE

UT has $2.4 in cash/$3.2 bookvalue but I think the above list makes it much more valuable to a Cisco. I think Cisco can offer $7/share with no problem at all. Thats only $600m in net cash which is nothing for Cisco. It may be difficult to imagine UT getting that premium but not if they were a private company right now. Why is Face Book worth $10B with $300m in revenues (if that) and losing money? Cisco has 5.77Billion outstanding shares. If Cisco offers 0.4 Cisco shares for every UT share, that would be only 50m Cisco shares (less if part of the offer is UTs cash).

In early 2007, UT was trading at $10 and the potential acquirers wanted only the core assets and UT balked. UT has continued developing their core assets and has gotten rid of non-core assets. Imagine going to other countries with a Cisco IPTV system. Thats credible and could go up against Microsoft. It makes too much sense for both sides. I think the question is when and how much.....

Have a good evening.

PS. For the last week or so, I have had little or no Chinese visitors to the blog...It could be the company is now blocking internet access and it is very tight lipped right now.