Yesterday, Cisco Systems, Inc. [NASDAQ: CSCO] announced that it had agreed to buy Acacia Communications, Inc. [NASDAQ: ACIA] for $2.6 billion in a deal that looks to close in mid-2020. This means that it is paying roughly $70 per share, valuing ACIA at about 46% premium.
Through this deal, Cisco aims to better meet customer needs from its huge network. It is all parts of the company’s strategy to reinvigorate its product offering. The company has been adding new software and product, and it is working well, as seen in the company’s bullish projections. In May, Cisco provided investors with a bullish sales forecast, for this quarter. Analysts are bullish on this deal as well. A Bloomberg tech analyst believes that this deal gives Cisco a competitive edge in the market. This sits well with Cisco’s bullish revenue and profit forecasts for the near-term.
Acacia’s acquisition could help Cisco grow its revenues from sales to big data centers, such as those owned by Amazon. That’s because, part of Acacia’s business is to make chips that translate optical signals into electronic data. These products are useful in driving up the speed of information flow in data centers. This is a market that Cisco has not been very competitive in the past.
From the charts, this deal hasn’t had much of an impact on Cisco’s price action. In Tuesday trading, the stock only edged higher by 0.27% to close the day at $56.34. It doesn’t seem to have much excitement in price in pre-market trading either. At the time of writing, CSCO is down slightly by 0.46% to trade at $56.08. However, things are a bit different for Acacia. In Tuesday trading, Acacia shot up by 35%, making it one of the big gainers in the day. Nonetheless, both stock are having a stellar 2019. For instance, Cisco has been strongly bullish all through the year, and is up by about 30% so far.
In the day, the key level to watch for Cisco is Tuesday’s high of $56.69. This is a key resistance level in the day, and a push above it could see Cisco trade in the green on Wednesday.