``We've sold that part of our business most exposed to competition and where we couldn't be a leader,' he added.
Pirelli, Cisco in Fiber Optics Alliance
By Claudia Parsons Dec 20 11:47am ET
MILAN (Reuters) - Italian tire and cable maker Pirelli said on Monday it had formed a strategic alliance with Cisco Systems that includes Cisco buying Pirelli's Terrestrial
Optical Systems business for $2.15 billion in stock.
The agreement, to be finalized between end-January and mid-February, also sees Cisco buying 10 percent stakes in Pirelli's newly-formed Optical Components (Terrestrial and Submarine) division and in its Submarine Optical Systems division for $100 million in cash.
Pirelli said forecast for sales in 1999 for the terrestrial division was 220 million euros, for the submarine division 160 million euros, and for the components division 20 million euros. Pirelli, one of the leading makers of photonic devices which are used to increase the capacity, speed and economics of fiber optic networks, will keep 100
percent of its Optical Fibers division and its Optical Cables division, as well as the majority of the submarine and components divisions.
``This agreement will allow the strengthening of Pirelli's strategic and competitive position in the core business of optical fiber, optical cables, optical components and
submarine optical systems, which are among the fastest growing segments of the optical industry,' said Pirelli Chairman and CEO Marco Tronchetti Provera in a
statement.
Under the deal Cisco will pay $2.15 billion in stock for 100 percent of the terrestrial division, equivalent to around 0.67 percent of Cisco's market capitalization of around
$320 billion.
The exact number of shares will be decided on the basis of Cisco's share price when the deal is finalized.
Tronchetti Provera said at a news conference he thought Pirelli would probably sell the Cisco stake eventually. ``We have no plans to buy into Cisco,' he said.
``This was a natural meeting between our two companies. There will be cooperation and joint development in optical components and submarine optical systems. As for other things, we'll see.'
``We've sold that part of our business most exposed to competition and where we couldn't be a leader,' he added.
SHARES GAIN AFTER DEAL
Pirelli shares gained eight percent in afternoon trade while Cisco was up 1-12/16 at $101.07/16 in early trade.
``On face value it's good news. It looks like it's going to lead to further cooperation in other areas,' said an Italian stock trader in London.
Valentino Romeri, analyst at Rasfin in Milan, said the deal was important for Pirelli as it would lead to close cooperation in future. ``I get the impression that on the basis of this accord Cisco is linking itself very closely with Pirelli.'
The acquisition, by the biggest maker of equipment that powers the Internet, rounds
out Cisco's options for sending phone, Internet and video traffic over fast optical
networks.
It also comes as data networking and telephone equipment suppliers including Cisco,
Lucent Technologies Inc., Nortel Networks and others race to build systems that can
send more data across networks faster and more cheaply.
The announcement comes shortly after Canadian rival Nortel agreed to buy Qtera
Corp., a Florida-based company, for about $3.2 billion. Qtera to date has no sales and
few customers but has developed a product that lets phone and data traffic be sent on
fiber-optic networks over longer distances at lower cost.
Pirelli said the synergies from the agreement will lead to a solid improvement in its
Internet related optical technology business. It is Cisco's first multi-billion deal in
Europe and its fourth-largest ever.
``We are studying projects in the Internet sector,' Tronchetti said but declined to give
any details. ``In the Internet economy, only those companies that work together will
accomplish their joint goals at an Internet pace,' said John Chambers, President and
CEO of Cisco Systems.
-- with additional reporting by Malcolm Whittaker |
