Acacia Communications says Cisco merger is off; Cisco disagrees

Acacia Communications (Nasdaq: ACIA) announced this morning that it has terminated its merger agreement with Cisco Systems Inc. (NASDAQ: CSCO). The optical transceiver and coherent DSP supplier said it would halt the merger because the proposed deal had not received approval from Chinese authorities by today’s deadline. However, Cisco asserts it received approval from the State Administration for Market Regulation of the People's Republic of China (SAMR) yesterday and filed suit in the Delaware Court of Chancery, asking the court to force Acacia to go through with the acquisition.

Cisco and Acacia announced in July 2019 that they had signed an agreement for Cisco to buy Acacia for approximately $2.6 billion on a fully diluted basis, net of cash and marketable securities (see “”). As is the case with all such agreements, consummation of the transaction hinge, among other things, on such closing conditions as regulatory approval. This condition includes approvals from foreign authorities if the companies involved do business internationally. In the case of Cisco and Acacia, that includes China.

Perhaps in light of the increased tensions between China and the U.S. during the past several years, Chinese authority SAMR has been slow to grant approvals for mergers between U.S. technology companies. The merger of Finisar and II-VI was delayed for this reason (see “”). The Cisco/Acacia merger has received similar treatment from SAMR; the companies originally hoped to receive approvals by the middle of last year but had to extend the agreement deadline to January 8, 2021, when SAMR continued to withhold its blessing (see “”).

“The proposed merger, announced in July 2019, was conditioned on the satisfaction or waiver of customary closing conditions, including obtaining necessary regulatory approvals within the timeframe contemplated by the merger agreement. Because approval of the Chinese government’s State Administration for Market Regulation was not received within the timeframe contemplated by the merger agreement, Acacia did not have an obligation to close the merger before the arrival of the January 8, 2021 extended end date. As such, Acacia exercised its right to terminate the proposed transaction in accordance with the terms of the merger agreement,” Acacia said in a statement issued this morning.

“On January 7, 2021, Cisco was notified by SAMR that the agency has determined that Cisco's submission is ‘sufficient to address the relevant competition concerns,’” Cisco responded in its own statement later in the morning. The company said it seeking confirmation from the Delaware Court of Chancery that it had now satisfied all of the merger conditions. It also said it was seeking an order that Acacia could not pull out of the agreement while the Court of Chancery was determining whether the conditions had been met as well as a second order that would require Acacia to complete the transaction.

Acacia’s motives for breaking off the deal remain a matter of speculation. “We suspect Acacia's decision to walk away may reflect several possible factors including perhaps an effort to renegotiate terms,” wrote Simon Leopold of Raymond James Equity Research in a note issued this morning. Leopold noted that Cisco's original bid implies a 5.5X CY21 current consensus sales multiple for Acacia, significantly smaller than the 12.5X multiple Marvel has offered for Inphi (see “”).

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