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Cisco buys GeoTel for $2B
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April 13, 1999: 12:20 p.m. ET
Purchase expands Internet networker's presence in online voice services
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NEW YORK (CNNfn) - Cisco Systems Inc., looking to strengthen its presence in voice communications over the Internet, agreed to buy GeoTel Communications Corp. Tuesday for about $2 billion in stock.
Under terms of the deal, GeoTel (GEOC) holders will receive 0.5138 Cisco (CSCO) share for each of theirs. The companies hope to complete the transaction by the end of Cisco's fiscal year in July.
The deal sent GeoTel's soaring 12-5/8, or 29 percent, to 56-7/8 in morning trade. Cisco shares fell 2 to 115-3/4.
GeoTel makes software that routes phone calls via the Internet to corporate call centers.
"Today's announcement is an extension of our commitment to open voice technology," said Don Listwin, a Cisco executive vice president.
The deal also underscores a rapidly growing movement to transmit data, voice and video traffic over a single, Internet-based network infrastructure.
Focus on small deals
Last week, Cisco announced the acquisition of two companies - Fibex Systems and Sentient Networks - aimed at increasing its ability to provide services through asynchronous transfer mode, which allows video, audio and computer data transmission over the same network.
To this point, Cisco has been content with making relatively small deals compared with the blockbuster mergers that have linked telecom and data networking companies.
Canada's Northern Telecom, for example, last year scooped up Bay Networks to form Nortel Networks (NT). Earlier this year, Lucent Technologies Inc. (LU) acquired Ascend Communications (ASND) in a deal then valued at $20 billion.
Despite these moves, analysts said Cisco isn't likely to link with a big-name telecom firm - and that strategy will probably work to the company's advantage.
"Cisco is buying technology to build their business, and the leading-edge technology is being developed by smaller companies," said William Becklean, an analyst at Tucker Anthony. "The big telecom companies are stuck in legacy technologies that's dead on their butts."
Christin Armacost, an analyst at Everen Securities, noted that while GeoTel posted 1998 revenues of only $44.9 million, the company grew 141 percent on a year-over-year basis.
"For Cisco to get into a market like intelligent call routing, GeoTel is considered one of the market leaders," Armacost said. "A deal like this definitely shoots an arrow in companies like Lucent."
Armacost noted that the one area in which Cisco may be shopping for a big-name player is in wireless communications.
"That market is very well developed," she said. "But it's not an industry Cisco needs to get into in the next six to 12 months." 
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