Cisco to Buy WebEx for $3.2 Billion: Competition for Microsoft?

Fascinating move by Cisco (CSCO) today, cutting a deal to buy WebEx (WEBX) for $3.2 billion in cash, or $57 a share (or $2.9 billion once you net out WebEx’s balance sheet cash).

WebEx, of course, is a specialist on online conferencing and collaboration, and one of the most successful players in the software-as-a-service segment. Buying WebEx creates a new point of competition with Microsoft (MSFT), which offers various collaboration tools of its own.

Cisco says the deal is consistent with its push into “unified communications,” in particular for small- and medium-sized businesses.

In the June 2006 issue of Smart Money, I wrote a bullish column about WebEx (the stock was around $35 at the time; unfortunately, it isn’t online anywhere or I would link to it). It noted that if there was one worry for the stock, it was the potential that Microsoft might make a more serious play in the collaboration market. Ray Ozzie, now Microsoft’s software development guru, came to the company via the acquisition of online collaboration startup Groove Networks. Cisco’s move into online collaboration is a bold move into both software and services; I can’t imagine Ray Ozzie is too happy about this.

Cisco says the deal will close in its fiscal fourth quarter, which ends in July. The company expects the deal to be neutral to non-GAAP FY 2008 earnings.

WebEx CEO Subrah Iyar will stay with the company, and report to Cisco chief development officer Charles Giancarlo.

Cisco today is down 6 cents at$25.79; WebEx is up $10.46 at $56.66.

CSCO vs. MSFT vs. WEBX 1-yr chart