$4 billion in debt: is Cisco gearing up for a big acquisition?

UPDATED 02/09/09:: Reuters is reporting that Cisco on Monday did indeed launch $4 billion debt in a two-part sale, with pricing details expected to emerge later today, according to IFR, a Thomson Reuters service. The sale includes $2 billion in 10-year notes expected to yield 2.00 percentage points over U.S. Treasuries and $2 billion in 30-year bonds expected to yield 2.25 percentage points over Treasuries. The joint lead managers on the sale are Banc of America Securities, Goldman Sachs and JPMorgan. On Friday, Cisco Systems filed the first set of documents with the SEC that would allow it to sell debt securities and speculation has been high as to what Cisco might be up to. Best guess: it is readying the financial might to make a big acquisition of some kind.

It is an interesting game to wonder why Cisco might want to raise funds by selling debt when it is sitting on nearly $30 billion in cash and equivalents, according to its last quarterly report.

The obvious conclusion is that, with the stock market hurting and its own stock depressed, it would sell debt to finance a big acquisition. The SEC documents lists the intended use of the money, should Cisco proceed, as “for general corporate purposes,” which is listed by the company as repurchases of common stock, repayment of debt, acquisitions, investments, additions to working capital, capital expenditures and advances to or investments in subsidiaries.

So for the moment, let's pretend that it is not gearing up to do something that isn't very sexy, like a big stock buyback. If Cisco were to be putting together a large acquisition, the time would be right to get a smoking deal. Bloggers among the blogosphere have named many potentials that Cisco could snap up -- albeit none of these would require fancy financing options -- but names include Cavium Networks, Blue Coat Systems, or a cloud computing vendor (Elastra?).

Who would you like to see Cisco buy next?

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