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Cisco to buy mobile specialist Starent for $2.9 billion

Acquisition is designed to help Cisco keep a grip on the rapid growth of the mobile Internet due to the rising number of smartphones and other devices.

Cisco Systems plans to buy Starent Networks for about $2.9 billion as it sharpens its focus on mobile networks.

Under a deal announced Tuesday, Cisco will pay $35 per share in cash and assume outstanding equity awards for Tewksbury, Mass.-based Starent. The deal is expected to close in the first half of 2010.

Starent's products are designed to help service providers scale their mobile infrastructure and to manage access from 2.5G, 3G, and 4G radio networks to their packet core network. Its technology is deployed in CDMA2000 (1X, EV-DO), UMTS/HSPA, and WiMax networks.

Smartphones such as the Apple iPhone and other mobile devices are putting increased demands on Internet access. Cisco said that mobile data traffic worldwide is expected to more than double every year through 2013.

"Combining Cisco's strength in video and IP with Starent Networks' leading mobile infrastructure solutions creates a compelling portfolio of products that provides an integrated architecture to offer rich, quality multimedia experiences to mobile subscribers on 3G and 4G networks," Starent CEO Ashraf Dahod said in a statement.

When the deal is completed, Starent will become Cisco's new Mobile Internet Technology Group, under the leadership of Dahod.

Avian Securities viewed the deal favorably in the context of wireless carriers making the transition to 3G and 4G networks, saying in a note Tuesday morning that it "puts Cisco into play within the mobile infrastructure sector, which the company has not has much success in over the past eighteen months."

In addition, Avian analysts wrote, "Cisco is intent on remaining relevant within the core networking equipment segment and snatching (Starent) out from under (Juniper Networks) is an indication of how far Cisco will go to maintain its market share within core networking products."

Cisco expects the acquisition to dilute its earnings in its fiscal years 2010 and 2011 and to be accretive in fiscal 2012. In calendar 2008, Starent, which has approximately 1,000 employees worldwide, reported revenue of $254.1 million, up 74 percent from the preceding year.

The deal has been approved by the boards of both Cisco and Starent. It now awaits regulatory review.

Earlier this month, Cisco said it would spend $3 billion in cash to acquire Tandberg, a global supplier of video communications equipment.

Updated 8:08 a.m. PDT with comment from Avian Securities.