Cisco's Scientific Discovery

There was a brief moment in time a couple of years ago when Cisco Systems (Nasdaq: CSCO  ) lapped Microsoft (Nasdaq: MSFT  ) and General Electric (NYSE: GE  ) to command this country's largest market cap. A few more deals like this morning's $6.9 billion proposed acquisition of Scientific-Atlanta (NYSE: SFA  ) and it just may get back there.

In the words of Stephen Colbert, ExxonMobil (NYSE: XOM  ) , you're on notice.

Cisco will be paying $43 a share to snap up all of the outstanding shares of the set-top box specialist. Thanks to Scientific-Atlanta's pristine and cash-rich balance sheet, Cisco's actual outlay will run closer to $5.3 billion.

The price isn't too shabby when one considers that Scientific-Atlanta's stock was trading in the low teens two years ago. The deal values the company at 24 times this year's projected profits. On an enterprise value basis, that multiple drops to a bit more than 18 times earnings in the current fiscal year. That is still a smidgeon higher than Cisco's fiscal year profit multiple, though it would be nearsighted to call this deal dilutive until we see what Cisco is capable of in terms of realizing synergies.

For those left scratching their heads over the union in the first place, look at it this way: Cisco has been a slave to corporate information technology spending for ages. Now it will be able to ramp up its already growing presence on the consumer side. Scientific-Atlanta isn't the same sleepy company that you may associate with old-school cable box converters. It has become a major player in the digital home movement, and Cisco's networking products are a logical fit -- on the consumer and corporate side -- for the future of video content delivery.

The acquisition is expected to close before the end of March. With $13.5 billion in cash and investments, Cisco will certainly be good for the money without having to boogie over to the pawn shop to hock some of its networking routers and switches.

During this morning's conference call, Cisco envisioned the convergence of data, voice, mobility, and video as "the infrastructure of the future," and it had the first three covered. Scientific-Atlanta comes in galloping with the fourth necessary horse to make it happen.

So go ahead and nod in approval. The deal makes sense. They were interlocking puzzle pieces and, in theory at least, Cisco and Scientific-Atlanta will look good together.

Longtime Fool contributor Rick Munarriz isn't a router rooter -- though he plays one on TV. He does not own shares in any of the companies mentioned in this story.The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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