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GROUP 8
Corporation
Section A
Veeresh Goswami
(PGP/17/060)
Itishree Dash (PGP/17/083)
Manash Hazarika
(PGP/17/091)
Pooja Punjabi (PGP/17/102)
Ritika Sharma (PGP/17/289)
1
ntroduction
CISCO CERENT CORPORATION
Jan 1997 Cerent incorporated under the name of Fiberlane
Worldwide leader in networking for the Communications, Inc.
internet. End-to-end solutions
May 1998 Carl Russo hired to lead the company as CEO
Manufactures LAN and WAN interconnect
devices including bridges, routers, ATM July 1998 raised $9 ml from Norwest Venture Partners and $1 mn from
Kleiner Perkins
switches, remote access system, etc
Identified need in optical transport network: High performance intelligent
transport system
Revenue derived from activity in the
telecommunications industry 1st product Cerent 454, advanced add/drop multiplexer
Aug 1999: When Cisco was 15 years old, Used its own direct sales force for early adopters
market cap became $225 billion the second
largest in Silicon Valley
Rapidly growing list of customers
Aggressive expansion strategy Oct 1998 Mike Volpi, VP Business Development and Alliances, Cisco
approached Russo
Tax Consequences
The case purchase of shares is the most tax favourable way for the acquirer to make an acquisition because it offers
the opportunity to revalue the assets and increase the depreciation expense for tax purpose. However, shareholders
of selling company will face tax for capital gains.
Tax treatments for stock financed acquisitions appear to favour the selling shareholders because they allow them to
receive the acquirers stock tax free
Accounting
Cash deals must be accounted for through the purchase-accounting method
Atleast 90% paid in shares acquisitions can be accounted for under the pooling-of-interests method. This approach
requires companies simply to combine their book values, creating no goodwill to be amortised. Hence, better
earnings are reported
The companies that use stock to base the price of the new shares on the current undervalued market price rather than on the
higher value they believe their shares to be worth this can cause company to pay more than it intends
Theoretically, we feel that Ciscos all stock offer would be more beneficial to Cerent even though its shareholders
share the risk of synergies, they will also reap benefits for growth and value Cisco offers to add to current working
of Cerent. The business is bound to grow and will get higher value due to complimentary nature of Ciscos
business and may expose Cerent to even higher no. of customers and their combined power will be unmatchable
by any competitor in Silicon Valley. Group 8 | Section A | Cerent Corporation 5
THANK
YOU!
Group 8 | Section A | Cerent Corporation 6