Cisco to buy Starent for $2.9 billion

By Ritsuko Ando

NEW YORK (Reuters) - Cisco Systems (CSCO.O) plans to buy advanced wireless equipment maker Starent Networks (STAR.O) for $2.9 billion (1.8 billion pounds) to boost its product offerings as phone carriers build out next-generation networks.

In its second major acquisition this month, Cisco said it would pay $35 a share in cash for Starent, a nearly 21 percent premium on its Monday closing price. Shares in Starent -- a nine-year old telecommunications gear firm founded by Indian-born entrepreneur Ashraf Dahod -- jumped 16.8 percent on Tuesday.

Analysts said the deal was negative for Cisco's smaller competitor, Juniper Networks JNPR.O, which sells network equipment mainly to telecommunications companies. Juniper shares fell 2.1 percent while Cisco rose 0.5 percent.

"Snatching Starent out from under Juniper is an indication of how far Cisco will go to maintain its market share within core networking products," said Avian Securities analyst Catharine Trebnick.

While Juniper and others like Alcatel-Lucent (ALUA.PA) could put in a competing offer, most analysts said they did not expect this as Cisco's deal is in cash and appeared fair.

Cisco, the top U.S. network equipment maker, said Starent's gear -- which helps operators handle traffic from smartphones and other Internet devices -- will help it offer a near- complete product set for mobile carriers.

UBS analyst Nikos Theodosopoulos said the price is almost 40 times Starent's 2010 earnings estimates, a multiple that Cisco has not paid since it bought WebEx in 2007.

Starent makes network equipment that connects mobile phone service providers' core networks to 3G and 4G radio access networks, the newer wireless technology that supports mobile TV and multimedia messaging.