Networking giant Cisco Systems said it will pay about US$198 million to Japan's largest Net investor, Softbank, in exchange for a 1.65 percent stake in the company.
Softbank will issue about 5.56 million new shares in February through a private equity placement. Cisco will pay $35.96 per share, a discount of 31 percent off of Wednesday's closing price of $51.84. The price was set according to the average closing share price in the last 20 days on the Tokyo Stock Exchange, Softbank said.
As part of the agreement, Softbank will also sell part of its holdings in Cisco's Japanese unit for $275 million. Softbank is a minority owner of the unit. The companies will jointly establish a $1.05 billion "Softbank Asia Infrastructure Fund" to invest in broadband Internet and wireless technology companies around the Asia-Pacific region.
The news that hit the market Thursday morning caused a brief suspension in the trading of Softbank shares on the Tokyo Stock Exchange, as investors jumped on to buy as many shares as possible. The interest is good news for Softbank, whose market cap dipped below $184 billion about two weeks ago, for the first time since March 1999.
The deal could give Cisco an important global outlet for the acquisition strategy that it has been pursuing in the U.S. Cisco can leverage its Softbank tie to find attractive buyout targets in hot industry segments such as broadband and wireless in overseas technology markets.
For Softbank, the deal means a significant infusion of funds to help keep its vast array of investments alive. The Cisco deal pacifies disgruntled investors, too, in that it shows Softbank's ability to procure funds in a tough market.
Softbank will post a one-time gain of $275 million from the sale of the Cisco's Japanese unit. It will also gain about $197.85 million from the private equity placement. Softbank said it plans to use the proceeds from the sale for other new investments in broadband infrastructure and wireless.
"Everybody knows that Softbank is running out of money," says an analyst in Tokyo who declined to be identified. "But this shows that Softbank can do not only debt financing but also private placement. The risk towards Softbank's financing ability has slightly been reduced. This is a great deal for Softbank."
Still, the market looks to be tough for Softbank during the year ahead. As the dot-com breakdown in the U.S. made headlines, investors here have dismissed most of Softbank's projects, aside from those involving Yahoo.
Like Internet Economies elsewhere, the Japanese internet economy has gone through a quick structural change. Almost a year ago, when Softbank's market capitalization was around $8.5 billion, young companies were desperately seeking the imprimatur of this innovative incubator. Today, though, many promising Japanese startups have strong financial backing, whether from foreign investment banks or from traditional blue-chip companies.
Story courtesy of The Industry Standard (Australia): http://www.thestandard.com.au