CIT Group is likely to file for bankruptcy in the coming days, analysts and experts said.
The lender to small and medium-sized businesses is trying to restructure its debt, and is offering investors two options.
One path would be getting its unsecured debt holders — who hold a total of about $30 billion — to voluntarily exchange their bonds for new securities and equity. That path would avoid a bankruptcy filing.
The other and more likely option would be approving a reorganization plan before the company files for bankruptcy. CIT had about $70 billion of assets and $65 billion of total debt in the middle of this year, according to the latest publicly available figures.
CIT investors are entitled to vote for the exchange or the prepackaged bankruptcy by the end of Thursday. CIT spokesman Curt Ritter declined to comment.
The company has $800 million of debt due on November 1 and 3, and total liabilities as of mid-June of $64.9 billion.
Sources familiar with the matter have told Reuters that the voluntary debt exchange is unlikely to happen, and bankruptcy is much more likely.
Analysts have argued that the debt exchange was doomed from the start, because it required too many different kinds of investors with too many competing interests to comply.
“The market is by and large sending signals that a prepackaged is the most likely outcome, and it makes sense given the exchange offer,” said Kevin Starke, senior analyst at boutique brokerage CRT Capital Group.
If the company files for bankruptcy, it will likely try to complete the restructuring process as quickly as possible, experts said . In general, borrowers prefer to borrow money from lenders they are confident will be around for the life of the loan.
“A business like this has to get in and out of bankruptcy fast, because if they’re lingering, I would think competitors would start poaching customers,” said Stephen Lubben, a law professor at Seton Hall’s School of Law who focuses on corporate finance and financial distress issues.
The plan needs to win approval from investors holding two-thirds of the company’s debt, and half of the number of investors.
Activist investor Carl Icahn is encouraging individual investors to vote against CIT’s prepackaged bankruptcy plan. The company hopes its plan will eventually help it fund more new business out of its bank but Icahn wants the company to stop planning to make new loans and use its maturing assets to pay off its debt.
A prepackaged bankruptcy requires the approval of investors holding two-thirds of the dollar amount of every type of debt. Of the voting investors, one half by number must also approve.
Icahn has tried to rally retail investors to vote against the plan, in an effort to ensure that CIT does not get half of voting noteholders to approve the deal.
(Reporting by Dan Wilchins; Editing by Gary Hill)
Home prices rose for the fourth month in a row during August and suffered a smaller-than-expected annual drop, according to a report issued Tuesday.
Prices in the S&P Case-Shiller Home Price index of 20 cities rose a non-seasonally adjusted 1.2% in August. It was the fourth consecutive monthly increase and followed a 1.6% gain in July.
Prices were down 11.3% versus August 2008, but that drop was less severe than expected. Analysts surveyed by Briefing.com had forecast an 11.9% year-over-year drop.
"Broadly speaking, the rate of annual decline in home price values continues to improve" said David Blitzer, chairman of Standard & Poor’s index committee.
While many U.S. markets remain down versus this time last year, the relative rate of decline "has shown some real improvement," Blitzer added.
Home prices improved on an annual basis in 19 of the 20 major metropolitan markets in the survey.
State by state. In California, home prices have recovered notably from depressed levels in recent months, according to the report.
Home prices rose 2.8% in San Francisco during August, while San Diego prices were up 2.5% and Los Angeles gained 1.8% in the month.
Minneapolis had the biggest increase, with home prices rising 3.2% from July to August.
But prices continued to slide in areas that have been hit hard by foreclosures payday advance low fees. Prices dropped 0.5% in Cleveland and 0.3% in Las Vegas during August.
A shaky recovery. Overall, the housing market has been stabilizing as low home prices and attractive mortgage rates, as well as government tax credits, have revived anemic home sales.
However, the market remains hampered by unemployment, which rose to a 26-year high last month. And real estate analysts warn that the expiration of a popular new homebuyer tax credit next month could stifle the rebound in home sales.
The improvement in home prices could also be hindered by a "wall of supply" coming to market this spring from private sellers and foreclosures, warned Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Given the long-term challenges facing the housing market, the outlook for home prices remains grim.
Home values are predicted to drop in 342 out of 381 markets during the next year, according to a recent study by financial information and analysis firm Fiserv.
Fiserv expects the national median home price to drop 11.3% by June 30, 2010.
Shares of Amazon.com surged to an all-time high Friday as investors bet that the online retailer would dominate e-commerce as shell-shocked consumers gradually begin spending again.
The rally came one day after Amazon reported a 69% surge in third-quarter profit, led by strong sales of the Kindle e-reader and other electronics and general merchandise.
The Seattle-based company’s stock closed up 27%, to 118.49, shattering the previous high of $106.68 from December 1999.
"[Amazon] held up better than overall e-commerce and retail during the downturn and it appears to be one of the first to be spring-boarding out of it," said Frederick Moran, an analyst who follows the company for The Benchmark Company.
Moran said Amazon drew price-wary consumers away from online competitors and traditional retailers as the recession forced many households to cut back on expenses. Now that consumer spending appears to be gradually recovering, "the rate of growth at Amazon looks truly stunning," he said.
Amazon (AMZN, Fortune 500) said Thursday that sales climbed 28% to $5.45 billion in the third quarter, beating analysts’ expectations for an 18% rise to $5.03 billion.
Sales of electronics and other general merchandise, which represent 43% of Amazon’s revenue mix, grew 51% in North America and 48% internationally.
Looking ahead, Amazon said it expects fourth-quarter sales to range between $8.12 billion and $9.12 billion, or to grow between 21% and 36% compared with fourth quarter 2008.
Amazon could sustain a 25% growth rate through next year, according to Moran. "Amazon has very uniquely stood out above the retail crowd," he said.
Even as the Obama administration is unveiling plans to impose unprecedented pay caps on top officials at the seven U.S. companies receiving the largest federal bailouts, the U.S. Supreme Court is preparing to hear a case that turns on whether to apply analogous pay caps on certain financial advisers.
Even more important, the court’s ruling in the case known as Jones v. Harris Associates — being argued November 2 — will provide insight into how the current roster of justices view the economic question of our day: When should market forces be reined in by government?
Typically, when directors pay a CEO a suspiciously bloated salary, the action raises only state-law questions, not warranting the Supreme Court’s attention.
The upcoming case, however, raises a closely analogous issue that does happen to be controlled by federal law: What happens when ostensibly independent directors of a mutual fund approve bloated fees for the fund’s financial adviser — the same adviser who most likely created the fund and, in most cases, still oversees it? (A 1970 amendment to the federal Investment Company Act imposes a fiduciary duty on fund advisers not to accept excessive compensation and empowers investors to enforce that duty in court.)
The facts of the case are these: In 2004 investors in three Oakmark mutual funds — which had, ironically, each just completed three years of stellar performance — sued the funds’ adviser, Harris Associates, for allegedly accepting too much in fees during that time. (The investors’ law firm also brought similar cases against 11 other leading fund advisers, including those for American Century, Fidelity, Janus (JNS), and Putnam.)
Citing the fact that Oakmark’s fees had been fully disclosed and were well within industry standards — roughly 1% of assets for the first $2 billion invested — the district judge threw the case out before trial in 2007.
Last year the federal appeals court in Chicago affirmed that decision. U.S. Circuit Judge Frank Easterbrook, one of the most eminent jurists of the conservative Chicago School of Law and Economics, explained his ruling bluntly: "A fiduciary must make full disclosure and play no tricks but is not subject to a cap on compensation." Ho-hum.
Then things took a turn toward the extraordinary. In August 2008, when the full Seventh Circuit Court of Appeals declined to rehear the case, five judges signed a rare dissenting opinion. More remarkable still, the dissent was authored by Judge Richard Posner, another towering intellect of the free-market Chicago school.
Perhaps undergoing a mid-financial-crisis crisis, Posner urged that market forces could not be trusted in this situation. In his view Judge Easterbrook’s analysis was "ripe for reexamination" because of the "feeble incentives of boards of directors to police compensation." He stressed that Harris charged mutual fund investors roughly twice what it charged independent institutional investors.
Seeing the deep rift within the Seventh Circuit and a conflict with other circuit court rulings, the Supreme Court snatched the case up in March.
Even aside from its implications for CEO pay, Jones v. Harris Associates directly affects the $10 trillion mutual fund industry in which 92 million investors participate. At least 14 outside groups have filed friend-of-the-court briefs.
Jones’s supporters include Vanguard founder John C. Bogle, AARP, and the U.S. Securities and Exchange Commission. Rooting for Harris Associates, on the other hand, are various industry trade groups and the libertarian Cato Institute.
We’re wagering that the court will reject Judge Easterbrook’s view — that virtually any fee, so long as it’s disclosed, is okay — but still won’t find Oakmark’s fees to have been illegally out of whack.
Of greater interest will be the straw poll of the Supreme Court’s views on laissez-faire capitalism itself. Is it, too, "ripe for reexamination"?
would have to commit to increasing their lending, too.
So far, that hasn’t happened. Bank of America’s small business lending has dipped 4.1% in the last five months. The Charlotte, N.C.-based megabank says the decrease stems from the recession’s grim effect on small businesses’ balance sheets. As a result, Bank of America has tightened its lending standards, according to spokesman Don Vecchiarello.
Increasing the max loan size: The second major component of the President’s proposal involves lifting the maximum on SBA loans.
"These are the type of loans that Joe and Doug used to expand this business and create new jobs," Obama said, referring to his hosts for the day, Metropolitan Archives co-owners Joe Incarnato and Doug Peters. "Larger loans will help more small business owners and franchisees grow."
However, the majority of small businesses looking for loans are not pushing up against the SBA’s loan ceiling. Of the 44,000 loans the SBA backed last year, fewer than 15,000 were for more than $150,000, according to SBA data.
That has some small business owners scratching their heads over the new initiatives. Chuck Blakeman, president of Denver-based small business advisory firm Team Nimbus West, blasted Wednesday’s announcements as "another photo op for politicians that does absolutely nothing to solve the crisis for small business owners."
To score an SBA loan, businesses still have to convince a bank to issue it. With SBA lending down sharply, that’s a daunting challenge. "Somebody please tell me how raising the limits on loans people can’t get is helping them," Blakeman said.
Obama left the door open to further intervention, if these new efforts don’t spark a turnaround.
"[There’s] no question that we have a long way to go," he said.
College costs are higher than ever, according to a new report, putting a degree even further out of reach for many Americans.
Tuition and fees at private 4-year schools rose 4.4% in the current school year to $26,273, according to a survey released by the College Board Tuesday.
Charges at public 4-year universities spiked over 6% for both in-state and out-of state students, to $7,020 and $18,548, respectively.
"We’re in a very strong sellers market for higher education," said Pat Callan, president of the National Center for Public Policy and Higher Education, who noted that the high school graduating class of 2009 was the largest in history.
"Colleges and universities are capitalizing on that more than any other institution in the economy. If you walk around a shopping mall, nobody else is raising prices at the same rate."
Tuition prices are going up at private schools at least in part because those schools have seen their endowments dwindle. Public schools are suffering from a dip in state funding, which declined 5.7% per student this year. (College Cost Finder: Get the latest tuition.)
Less grant money. At the same time, the availability of financial aid isn’t keeping up with these climbing costs. Grant funding grew only 4.7% in the 2008-2009 academic year, the most recent for which data is available, which means that undergraduates’ out-of-pocket costs are higher than ever.
That, combined with higher unemployment and stagnant household incomes, is making it harder than ever to finance a degree.
The good news, if it can be called that, is that about two thirds of full time students receive financial aid that doesn’t need to be repaid. After taking grants into consideration, coupled with federal tax benefits, the net cost of college is much lower than the sticker price. On average, students at private schools are paying $11,900, while those attending public schools are spending about $1,600 out of pocket each year.
That still leaves a third of students paying full freight, and every undergrad is still contending with room and board costs that are also climbing, up 5 payday loans with low fees.4% at public schools at 4.2% at private schools this year.
"Tuition is only one part of the picture," said Sandy Baum, a senior policy analyst at Collage Board. "Even though the net tuition might not be rising for students who get grants, the aid is not enough to cover living costs."
More borrowing. To help bridge the gap between what college costs and what families can afford, student loans are also up. Total borrowing increased 5% between the 2007-2008 and 2008-2009 school years, the most recent for which data is available.
If these trends continue, experts say that it will become even harder to get a college degree.
"If we don’t find a way to constrain costs and invest in financial aid at the same time, we won’t have any gain in increasing the accessibility or affordability of higher education," said Pat Callan from the National Center for Public Policy and Higher Education.
Callan and his colleagues say that state governors and legislators have to put pressure on public colleges and universities to limit tuition hikes, while trustees must do the same at private schools.
Simultaneously, Callan adds, schools need to invest more financial aid in students who really need it. For instance, at public schools during the 2007-2008 year, two-thirds of grant money went to students without regard to financial circumstances. Students from the lowest income families got an average of just $570 in non need-based grants, while students from upper-middle income families received $730.
But the College Board’s Sandy Baum is optimistic that this is one challenge that the education community can address.
"I think that the silver lining to the current problem is that we’ll waste less money on kids who don’t need it," she said, "and focus on kids who need the funds."
General Electric Co. continued to get hammered by its troubled finance arm, but the conglomerate’s widespread cost cutting and a strong showing from its consumer and industrial units helped GE’s profit beat Wall Street’s expectations.
The company said it was starting to turn around its finance unit GE Capital, and began to see signs of stabilization across the board.
"In a global economic environment that is beginning to slowly recover, GE delivered solid third-quarter business results," said Jeff Immelt, GE’s chief executive, on a conference call with investors. "GE is well positioned in this reset economy."
The Fairfield, Conn.-based conglomerate said its third-quarter net income fell 44% to $2.4 billion, or 23 cents per share, for the period ended Sept. 30. Results included a charge of $600 million, or 5 cents per share for restructuring and cost cutting.
Without the charge, GE earned 28 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, forecasted earnings of 20 cents per share.
Sales fell 20% to $37.8 billion, missing analysts’ forecasts of $39.5 billion.
The company’s infrastructure business has fared very well in the past year despite the deep economic recession. But much of the company has been rocked by the downturn, dragged by losses at finance arm GE Capital and struggling media unit NBC Universal. GE is expected to sell its majority stake in NBC in the coming months, perhaps to cable provider Comcast (CMCSA, Fortune 500).
"GE’s operating performance has been uneven and its finance portfolio is a source of risk," said Jeffrey Sprague, Citigroup analyst, in a note written after GE reported its earnings. "We believe GE may have reached the point that its size and complexity have become a hindrance to effective management."
Shares of GE (GE, Fortune 500) dropped 70 cents, or 4%, in afternoon trading to $16.09. The stock fell below where it started the year at $16.20 per share, but it is well above its closing point of $6.66 set on March 5, which was an 18-year low.
GE Capital: Revenue from the company’s finance arm fell 30% to $12.2 billion in the quarter, accounting for nearly a third of GE’s overall revenue.
Immelt said the company has made "significant progress to make GE Capital safe and secure," shrinking the company ahead of schedule. He said that winding down had a negative impact on revenue, but serves as "an important part of our strategy."
Many analysts and GE investors have been pushing the company to scale back GE Capital even further and focus it more on vendor financing for corporate customers as opposed to consumer finance and real estate loans.
The unit was profitable in the third quarter, but earned just $263 million, down 87% from a profit of $2 billion during the same period last year. As in the second quarter, every segment of GE Capital was profitable except for the real estate unit, which lost $538 million in the third quarter.
Immelt said the company’s real estate division "is experiencing a tough environment," but said "the risks are well understood and manageable."
"While it remains a tough environment for GE Capital, we are seeing signs of stabilization," Immelt said. "We have successfully navigated through the financial crisis and are preparing GE Capital to be a smaller, more focused franchise."
Other units: Sales dropped in all of the company’s segments last quarter, but cost-cutting initiatives helped keep profits up for the most part.
NBC Universal’s revenue fell 20% in the quarter, but profit rose 13% compared to last year. Sales from the energy infrastructure unit fell 9%, but earnings were up 11%. At the consumer and industrial division, sales fell 18% but profit rose nearly 149%.
Besides GE Capital, only the technology infrastructure unit had falling revenue and profit last quarter. Sales at the division were down 11% and earnings fell 8%.
The company was mum on any possible deals for NBC Universal, saying that it constantly evaluates its diverse portfolio of assets, but doesn’t see an immediate need to sell any of them off.
GE holds an 80% stake in NBC, with French media company Vivendi holding the other 20%. Vivendi is believed to be interested in selling its stake in NBC, and GE said it may look to find a new partnership or allow Vivendi to sell its stake in a public offering.
"There has been a lot of speculation on NBC Universal, but in one way, shape or form, that’s been the case for a long time," said Immelt. "I don’t think we need to do any deals in the future … but we want to be ready for a number of scenarios, including an IPO or a strategic partnership."
There will be no cost-of-living increase for 57 million Social Security beneficiaries next year because consumer prices have fallen, the Social Security Administration announced on Thursday.
It marks the first time that Social Security benefits have not been increased year over year since the cost-of-living adjustment was put into effect in 1975.
To help counterbalance the hit, President Obama is calling on Congress to send another $250 relief payment to seniors and other Americans to stem the economic strain.
"Even as we seek to bring about recovery, we must act on behalf of those hardest hit by this recession," Obama said in a statement Wednesday. "That is why I am announcing my support for an additional $250 in emergency recovery assistance to seniors, veterans, and people with disabilities to help them make it through these difficult times."
Last year, Social Security beneficiaries got a 5.8% cost-of-living adjustment, the largest since 1982, largely because of the spike in energy prices.
"This year, in light of the human need, we need to support President Obama’s call for us to make another $250 recovery payment for 57 million Americans," said Commissioner of Social Security Michael J. Astrue in a written statement.
Since there will be no COLA for benefits, the law also prohibits the Social Security Administration from increasing the maximum amount of earnings subject to the Social Security tax. This year and next, the first $106,800 of a worker’s earnings is subject to the 12.4% Social Security tax. Workers typically pay half of that and their employers pay the other half.
It’s still not clear yet what if any changes will be made to seniors’ Medicare Part B premiums for hospital care next year. The Social Security Administration said in its announcement that if there is an increase that a "hold harmless" provision in the law would protect 93% of Social Security beneficiaries from the increase.
New emergency payment similar to COLA
Obama’s proposed $250 payment is roughly equal to a 2% increase in benefits for the average Social Security beneficiary.
Congress approved a similar payment as part of the $787 billion economic recovery act enacted in February.
As with the first $250 recovery payment, the second one would be exempt from income tax, a senior administration official said in a call with reporters on Wednesday.
If approved by Congress, the payments would be sent out in 2010, most likely in the first half. "It wouldn’t be late in 2010," the administration official said.
The measure would cost $13 billion over 10 years, according to White House estimates.
The call for increased benefits for seniors is one of several proposals to expand stimulus benefits. Lawmakers are also considering extending unemployment benefits and the homebuyer tax credit, both of which were included in the economic stimulus bill passed in February.
In addition to the $250 emergency payments, the White House has also publicly supported the extension of jobless benefits as well as the extension of subsidies to help the unemployed purchase health insurance under Cobra. The president has not said yet whether he supports the expansion of the homebuyer tax credit.
Where the money will come from
The original $250 relief payment was paid out of general revenue. That would likely be the case for the second payment as well.
Obama specified that he "is committed to ensuring that the $13 billion cost of the proposal does not reduce the solvency of Social Security or other social insurance programs."
That means the $13 billion wouldn’t be deducted — on the balance sheet anyway — from the payroll taxes collected to pay for Social Security.
But it also won’t be paid for by reducing spending or raising revenue in other parts of the budget. Typically economic stimulus is exempt from rules requiring that new measures be paid for.
So if the proposal passes, it will add to the country’s annual deficit, which in 2009 was estimated by the Congressional Budget Office to have hit a record high of $1.4 trillion.
As the Dow closed above 10,000 for the first time in more than a year Wednesday, economists cautioned that the blue-chip average shouldn’t be seen as giving a green light to the economy.
The stock market is what is known as a leading economic indicator, as investors place bets on how strong they believe company results and the broader economy will be in the near future.
Lately, there has been a growing consensus among both investors and economists that the battered U.S. economy hit bottom and turned around earlier this year, and is now in a recovery.
The Federal Reserve said economic activity has "picked up" in its statement after its Sept. 23 meeting, and about 80% of leading economists surveyed by the National Association for Business Economics agreed in a survey earlier this month that the recovery has begun.
But even economists who agree the economy is in recovery say that growth will be slow and difficult, with continued job losses, tight credit and further declines in home prices. And even some who believe that the current Dow 10,000 level is justified say there’s still a significant risk that the economy will take a step backward.
"One of the great challenges is whether consumers and small businesses come along with this recovery," said John Silvia, chief economist with Wells Fargo. "If they don’t, you either sit at 10,000 or slip back to 9,500. To sustain another double-digit (percentage) gain to Dow 11,000 is asking too much from this economy and the risks we still see out there."
There are also economists who question whether the economy is truly in recovery, given that it continues to lose about a quarter-million jobs a month. They say the more than 50% rally in the Dow since it closed at a low of 6,594.44 on March 5 is only a reflection that the fear of the economy toppling into a full-fledged depression has abated.
"We’re not at Armageddon anymore, so of course you should have some kind of rally," said Rich Yamarone, director of economic research at Argus Research. "But I think there’s a bubble-like atmosphere going on here in the rush back to 10,000. Caution should rule the day. We’re not out of the woods yet."
Several experts point out than many of the relatively strong earnings reports helping to lift the markets in recent days are being driven by cost cuts, rather than strong revenue growth that would be a better indicator of consumers and businesses being willing to spend again. If businesses keep cutting costs to make the numbers that Wall Street wants to see, that can only put more downward pressure on jobs and wages, and result in weaker economic growth or another downturn.
"The companies are cutting fat, and in many cases cutting bone and muscle. There’s no organic economic growth there," said Yamarone.
Barry Ritholtz, CEO and director of equity research at Fusion IQ, said that despite their reputation as a leading indicator, the stock markets do a terrible job forecasting the economy.
"Beware of economists pointing to the stock market," he said. "The rallies tend to be false starts because it’s a reaction to what came before. The sell-offs tend to be overdone because, as they gain momentum, they lead to panics."
Ritholtz said comparisons of current earnings to those of a year ago or stock levels to the lows of earlier this year greatly exaggerate the strength even the market sees in the economic outlook.
"It’s like saying the Detroit Lions have better year-over-year comparisons because they’re no longer winless," he said about the football team that went 0-16 in 2008, but has won one of five games so far this year. "But they’re still in last place and they’re not winning the Super Bowl."
Another reason that comparisons to Dow levels of a year ago are risky is that two of the more troubled components — General Motors and Citigroup (C, Fortune 500) — were dropped and replaced by stronger companies such as Cisco Systems (CSCO, Fortune 500) and Travelers Cos. (TRV, Fortune 500) in June.
Without those changes the Dow would be almost 100 points lower now than it is with the stronger companies, although precise comparisons are difficult since GM shares are no longer traded on the New York Stock Exchange.
"You take out the worst, put in the best, and by definition you’ll get better numbers," said Yamarone.
Telecom products maker Cisco Systems has entered a deal to buy wireless Internet infrastructure company Starent Networks for $2.9 billion, Cisco announced Tuesday.
Cisco will pay $35 per share for each share of the nine-year old Tewksbury, Mass.-based company, equal to about a 21% premium over Starent’s closing stock price of $29.03 on Monday.
Starent makes equipment for wireless providers such as AT&T (T, Fortune 500) and Verizon (VZ, Fortune 500) to send large amounts of data to cell phones, smartphones and computers with mobile broadband modems.
"We are very pleased that Starent Networks will be joining the Cisco team," said John Chambers, Cisco’s chief executive, in a statement. "We believe their products and engineering talent will greatly benefit our service provider customers as they build out their mobile Internet offerings."
The company said the acquisition, which expected to be completed by June 2010, won’t yield any profit until 2012 and will actually dig into its earnings through 2011. But Cisco said the deal was important for the future of the company, as it expects global mobile data traffic to more than double every year through 2013. Both companies’ boards approved the deal.
Starent Networks is a nine-year old company with about 1,000 employees worldwide. Last year, the company reported revenue of $254.1 million, which was up 74% from the previous year. Starent went public in 2007.
"This is a great move for Cisco," said Zeus Kerravala, analyst at Yankee Group. "When you look at the broader networking landscape, it’s in wireless. Until now Cisco could talk a big wireless game, but couldn’t back it up."
Cisco is the world’s largest telecommunications equipment maker. But it has been losing market share in recent months to Alcatel Lucent (ALU), which analysts say was better positioned for wireless networking than Cisco.
Juniper Networks (JNPR), another telecom infrastructure competitor, was widely rumored to be bidding for Starent as well.
"This is an offensive and a defensive move for Cisco: it helps Cisco compete with Alcatel for wireless and keep a competitor away in Juniper," said Kerravala. "Now the question is what does Juniper do? There are no other big, independent wireless infrastructure companies left."
Tech industry wheelings and dealings have been heating up in the past two months, including several high-profile multi-billion acquisitions for major companies. Xerox (XRX, Fortune 500) bought Affiliated Computer Services (ACS, Fortune 500) for $5.7 billion in late September, Dell (DELL, Fortune 500) bought Perot Systems (PER) late last month for $3.9 billion, and Adobe (ADBE) purchased Omniture (OMTR) last month for $1.8 billion.
Cisco’s announcement on Tuesday also follows a separate $3 billion acquisition of Norwegian videoconferencing company Tandberg earlier this month.
Despite two back-to-back big acquisitions, Cisco said it is still looking to make more deals.
"We will continue to be aggressive driving acquisitions," said Ned Hooper, Cisco’s chief strategy officer, on a conference call with investors. "These deals tend to lump together … but we still feel that our cash level allows us to be very flexible."
Shares of Cisco (CSCO, Fortune 500) rose less than 1%. Shares of Starent (STAR) shot up 17%.
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