July 27, 2001 9:35 AM PDT

Cisco to buy virtual-network company

In a move to tune up its part in the arena for virtual private network services, Cisco Systems on Friday said it has agreed to acquire Allegro Systems for approximately $181 million.

Under the terms of the agreement, Cisco will exchange common stock for all outstanding shares and options of Allegro, a privately held company that develops technology for enhancing VPN security. Cisco holds a minority stake in the Milpitas, Calif.-based software company.

The networking giant said it is purchasing Allegro to boost its existing VPN and security offerings with added performance tools to meet the requirements of companies connecting remote offices, employees and customers to corporate networks and the Internet.

The acquisition marks only the second for Cisco this year after a torrid spate of shopping. Earlier in July, the company announced plans to purchase privately held upstart AuroraNetics in a stock deal worth up to $150 million. Cisco said it wants to use AuroraNetics technology to bulk up its optical-equipment products designed to address the rapid growth of data traffic in metropolitan areas.

Cisco's tally of acquisition announcements so far this year pales in comparison to 1999 and 2000, when the San Jose, Calif.-based company scooped up a number of companies for networking gear intended to handle the convergence of voice, video and data traffic. It has purchased an average of 20 companies a year in those two years.

Cisco competes in the VPN services arena with companies such as Check Point, Juniper Networks and Nortel Networks. VPNs allow companies to build Internet-based connections that link mobile workers, branch offices and partners to their corporate computer systems.

The VPN market has long been touted as a networking method that can save businesses money. Without such a system, workers on the road have to dial in to corporate networks with a special number or over an expensive leased line. With VPNs, those same workers can log on to a network by calling a local Internet service provider number.

Allegro's software helps to integrate security systems within existing networks.

The acquisition will be accounted for as a purchase and is expected to close in the first quarter of Cisco's fiscal 2002.


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