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The acquisition process began back in July 2019 when Cisco agreed to purchase the networking chips maker Acacia for about $2.6 billion.
Cisco Systems Inc (NASDAQ: CSCO) has received its final approval to acquire Acacia Communications Inc (NASDAQ: ACIA) from the China State Administration for Market Regulation. However, the approval comes with set conditions by the Chinese regulator that requires the companies to honor existing contracts with Chinese clients for the next five years.
Besides, the regulator approved the deal on the condition that both companies should continue to provide Chinese customers with their products. Cisco shares jumped less than 1% during Tuesday’s pre-market to trade around $45.75, while Acacia stocks were up approximately 0.10% to trade around $114.49.
The acquisition deal began back in July 2019, after Cisco agreed to purchase the networking chips maker Acacia for about $2.6 billion. However, the deal has stalled due to a lack of Chinese regulator’s goodwill.
Notably, Acacia had previously declined the merger, a move that prompted legal actions from Cisco. “Because approval of the Chinese government’s State Administration for Market Regulation was not received within the timeframe contemplated by the merger agreement, Acacia did not have an obligation to close the merger before the arrival of January 8, 2021, extended end date,” Acacia previously stated through a press release.
However, in a bid to appease the company, Cisco raised its offer by more than 70% last week.
Acquisition of Acacia by Cisco: Bigger Picture
As a result of the acquisition, Acacia stocks have popped over 39% in the past five days. In addition, they enjoyed a significant rally last year, whereby they jumped over 66%.
According to data provided by MarketWatch, Acacia has a reported market valuation of approximately $4.85 billion with 42.36 million outstanding shares.
On the other hand, Cisco shares did not enjoy last year’s tech rally as they closed 2020 approximately 7.32% down. They have however rebounded and gained over 15.60% in the past three months. Cisco has a reported market valuation of approximately $191.97 billion with 4.23 billion outstanding shares.
Cisco is apparently seeking to venture into the lucrative 5G network market as the market rebounds from the ongoing coronavirus pandemic. Telecommunications companies are working towards developing infrastructure for better 5G network coverage as the latest smartphone shipments come enabled with 5G network capabilities.
The acquisition is strategic as it will significantly bolster Cisco’s attempt to venture deeper into the networking industry. The Chinese regulators have shown goodwill to working with the United States tech companies ahead of President-elect Joe Biden’s inauguration.
The outgoing Trump administration has been very harsh with Chinese tech companies as some remain blacklisted in the country.