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Cisco to buy Pirelli unit
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December 20, 1999: 10:51 a.m. ET
Networking giant to pay $2.15B for optical-systems unit; in Italian alliance
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NEW YORK (CNNfn) - Cisco Systems agreed Monday to buy the optical-systems business of Pirelli SpA for $2.15 billion and formed a strategic alliance with the Italian company, in its largest foray to date into Europe.
The acquisition, by the biggest maker of equipment that powers the Internet, rounds out
Cisco's options for sending phone, Internet and video traffic over fast optical networks.
San Jose, Calif.-based Cisco (CSCO) also plans to invest $100 million in cash into Milan-based Pirelli’s optical component and submarine optical-transmission-systems business, which lays undersea optical cables, said a person familiar with the transaction.
The optical-systems business of Pirelli, which also makes calendars and automobile tires, had 1999 revenue of about $225 million.
The acquisition, expected to close within 45 to 60 days, is Cisco's first move into the market for dense wave division multiplexing, or DWDM, technology, which uses differently colored light waves instead of electronic pulses to boost the bandwidth on networks that transmit phone, Internet and video traffic.
The market for optical networking is forecast to top $40 billion by 2005, according to projections by RDK, Dataquest and J.P. Morgan.
The deal, which will be accounted for as a purchase transaction, also marks Cisco's first
multibillion-dollar acquisition in Europe and is its fourth largest ever. It will round out technology Cisco acquired in the optical networking arena when it bought Cerent Corp. and Monterey Networks Inc. in August for more $7.4 billion in stock.
The deal gives Cisco access to blue-chip clients, including France Telecom (PFTE) and Deutsche Telekom (FDTE).
Pirelli shares jumped 5 percent in early trade on Monday in Milan. The company’s tire business has suffered amid consolidation in the world tire industry and it announced plans earlier this year to cut 2,800 jobs - or 7 percent of its workforce - as it warned that analysts’ forecasts for 1999 profits were too high.
In early morning trading Monday, Cisco (CSCO) shares rose 1-11/16 to 101-3/8.
--from staff and wire reports 
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