Cisco Splurges to Buy Switch Maker ArrowPoint

SAN JOSE, CALIF. (05/05/2000) - Cisco Systems Inc. today announced a definitive agreement to acquire publicly traded ArrowPoint Communications Inc., an Acton, Massachusetts, developer of Web switches, for $5.7 billion.

The acquisition is Cisco's second largest behind the $6.9 billion purchase of optical switch maker Cerent. ArrowPoint makes devices that are designed to optimize the delivery of Web content. The company's products perform URL- and cookie-based switching, functions that direct traffic based on information such as the content being requested and the frequency of the content request.

ArrowPoint's switches enable ISPs, Web hosting companies and other businesses to create a faster, more reliable Web experience, Cisco says. The company's products also strengthen Cisco's presence in emerging markets that include application service providers and dot-com companies, Cisco says.

At least one observer feels Cisco made the move in part because its LocalDirector load balancer hasn't met the company's expectations.

"The LocalDirector is a dead puppy," says Craig Johnson, principal analyst at The Pita Group, Portland, Ore. "It's interesting that Cisco could not build this type of product internally. They really must have thought they were behind the curve to pay this much."

Cisco Senior Vice President Kevin Kennedy says, however, that LocalDirector has some unique redundancy and failover capabilities, and Cisco plans no near-term repositioning of the product.

Cisco expects to complete the acquisition in the fourth quarter of its 2000 fiscal year. ArrowPoint was founded in 1997. Its 337 employees will join the Public Carrier IP Group in Cisco's Service Provider Line of Business.

Arrowpoint CEO Cheng Wu will report to Kennedy. Under terms of the agreement, Cisco will exchange 2.1218 shares of its common stock for every outstanding share and option of ArrowPoint. Based on the closing price of $63 5/8 on May 4, this values the transaction at approximately $5.7 billion.

The acquisition will be accounted for as a pooling of interests. It has been approved by the board of directors of each company and is subject to various closing conditions, including approval under the Hart-Scott-Rodino Antitrust Improvements Act and by ArrowPoint shareholders.

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