Cisco buys wireless Web firm for $2.9 billion

Cisco agreed to buy wireless infrastructure company Starent for $2.9 billion on Tuesday.

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NEW YORK (CNNMoney.com) -- Telecom products maker Cisco Systems has entered a deal to buy wireless Internet infrastructure company Starent Networks for $2.9 billion, Cisco announced Tuesday.

Cisco will pay $35 per share for each share of the nine-year old Tewksbury, Mass.-based company, equal to about a 21% premium over Starent's closing stock price of $29.03 on Monday.

Starent makes equipment for wireless providers such as AT&T (T, Fortune 500) and Verizon (VZ, Fortune 500) to send large amounts of data to cell phones, smartphones and computers with mobile broadband modems.

"We are very pleased that Starent Networks will be joining the Cisco team," said John Chambers, Cisco's chief executive, in a statement. "We believe their products and engineering talent will greatly benefit our service provider customers as they build out their mobile Internet offerings."

The company said the acquisition, which expected to be completed by June 2010, won't yield any profit until 2012 and will actually dig into its earnings through 2011. But Cisco said the deal was important for the future of the company, as it expects global mobile data traffic to more than double every year through 2013. Both companies' boards approved the deal.

Starent Networks is a nine-year old company with about 1,000 employees worldwide. Last year, the company reported revenue of $254.1 million, which was up 74% from the previous year. Starent went public in 2007.

"This is a great move for Cisco," said Zeus Kerravala, analyst at Yankee Group. "When you look at the broader networking landscape, it's in wireless. Until now Cisco could talk a big wireless game, but couldn't back it up."

Cisco is the world's largest telecommunications equipment maker. But it has been losing market share in recent months to Alcatel Lucent (ALU), which analysts say was better positioned for wireless networking than Cisco.

Juniper Networks (JNPR), another telecom infrastructure competitor, was widely rumored to be bidding for Starent as well.

"This is an offensive and a defensive move for Cisco: it helps Cisco compete with Alcatel for wireless and keep a competitor away in Juniper," said Kerravala. "Now the question is what does Juniper do? There are no other big, independent wireless infrastructure companies left."

Tech industry wheelings and dealings have been heating up in the past two months, including several high-profile multi-billion acquisitions for major companies. Xerox (XRX, Fortune 500) bought Affiliated Computer Services (ACS, Fortune 500) for $5.7 billion in late September, Dell (DELL, Fortune 500) bought Perot Systems (PER) late last month for $3.9 billion, and Adobe (ADBE) purchased Omniture (OMTR) last month for $1.8 billion.

Cisco's announcement on Tuesday also follows a separate $3 billion acquisition of Norwegian videoconferencing company Tandberg earlier this month.

Despite two back-to-back big acquisitions, Cisco said it is still looking to make more deals.

"We will continue to be aggressive driving acquisitions," said Ned Hooper, Cisco's chief strategy officer, on a conference call with investors. "These deals tend to lump together ... but we still feel that our cash level allows us to be very flexible."

Shares of Cisco (CSCO, Fortune 500) rose less than 1%. Shares of Starent (STAR) shot up 17%.