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  • mruyog mruyog Oct 16, 2012 12:33 PM Flag

    The Choice ALU Has

    WB, you understood it well. Cisco is sitting on a large mound of cash and must invest it wisely. I see its investment in ALU using that cash would be the best decision to do so for it. Merger with or takeover by Cisco will also be blessed by our govt which would bless the merger or takeover more easily. I suspect that such a deal with Samsung may face (both U.S. and French) govt objection and hesitancy for approval.

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    • Cisco is sitting on a large mound of cash. However it's P/E (the combine margins and growth rates would drop) would drop significantly if it to buy out ALU. On top of all Cisco has to allocate management resources to make the buyout work (especially labor and approval in France). Cisco is working hard to recover from its recent disappointment (last couple of years) in earnings and pps. There are discussions that John Chambers might be looking for a replacement soon. Furthermore buying ALU as a whole would not create complete synergies. I believe the buy out would work if Cisco can get rid of divisions it it does not want and retains divisions or products it wants (eg routers, patents....). It would be very messy.
      I don't know about Samsung so I can't comment on it. I suspect that private equities are looking at it to figure out how a buy out would work in conjunction with other telecom suppliers. The valuation of ALU is extremely low currently. A break up would be worth more than as it it is now.