Acacia terminates $2.6 billion deal to be bought by Cisco; Cisco battles back

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Acacia terminates its $2.6 billion merger with Cisco, but Cisco seeks a court order to keep the deal alive. (Pixabay)

On Friday, the wheels appeared to fall off of Cisco's $2.6 billion deal to buy coherent optics company Acacia Communications after Acacia said the merger failed to garner regulatory approval from China in the required timeframe.

In its Friday morning press release, Acacia said approval of the Chinese government’s State Administration for Market Regulation (SAMR) was not received by the Jan. 8 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 its press release.

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RELATED: Cisco's Acacia deal disrupts optical, routing markets

Shortly after Acacia's announcement, Cisco said it was seeking confirmation from the Delaware Court of Chancery that it had met all conditions for the closing of its acquisition of Acacia Communications, including China.

"Cisco is also seeking a court mandate that the agreement may not be terminated until the court resolves these matters, and an order from the court requiring Acacia to close the transaction," Cisco said it its press release. "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.'"

RELATED: Cisco's Acacia deal a key component of its core networking strategy

With Acacia in hand, Cisco would have a larger product portfolio to sell to web-scale providers, service providers and data center operators that are adding cloud and data capacity. Acacia's optical portfolio would also position Cisco to win a bigger chunk of 5G-related revenues from carriers.

"I do think it’s a setback for Cisco," said Jimmy Yu, vice president at Dell'Oro Group, in a Friday morning email to FierceTelecom. "A year ago Cisco announced plans around a technology strategy that focused on delivering the best silicon, optics, and software. In regards to achieving the technology presence in optics, Cisco has made a few select acquisitions. Acacia would have been a great acquisition for Cisco to complete its position on optical technology since Acacia has deep expertise in coherent optics."

The deal was supposed to close in the second half of Cisco's fiscal 2020 after it had been approved by the United States, Germany and Austria. China, which was a closing condition of the deal, became a sticking point for the closure after SAMR drug its heels.

When the deal was announced two years ago, Maynard, Mass.-based Acacia had three product categories—pluggable modules, semiconductors and embedded modules—that were slated to be added into Cisco's optical systems and optics portfolio.

Pluggables are a growing trend across the optical space as web-scale companies, service providers and data center operators look to deploy more 400G gear and services this year. Using ZR/ZR plus pluggable optics allows service providers to eliminate transponders in the their WDM (wavelength-division multiplexing) networks.

At the time the deal was announced, Cisco was using Acacia's technology in its optical systems portfolio, including its Network Convergence System (NCS) 2K, NCS4K and NCS1K products. In its routing portfolio, Cisco uses Acacia in both the NCS 5500 and ASR9K.

Acacia would also dovetail with Cisco's previous acquisitions of CoreOptics, Luxtera and Lightwire on the silicon photonics side. On the ASIC side, Cisco bought Leaba in 2016. Acacia would have rounded out those previous investments by bringing components, modules and digital signal processors (DSPs) for optical subsystems within switches, routers and optical networking gear.