As expected, Akamai (Nasdaq: AKAM) finally pulled a painful thorn from its side by buying Israeli start-up Cotendo. Though tiny in comparison to its buyer, Cotendo has been one of Akamai's largest competitors in the content delivery network and website acceleration services business.
Rumors have been swirling about such an acquisition since last month. Akamai ended up paying $268 million in cash. This is far less than the $350 million that was reported in November by the Israeli press, but considerably more than the initial $36 million Cotendo had raised from private investors since the company's 2008 founding.
And more recently, the company acquired another $17 million from those investors and new partners Citrix Systems (Nasdaq: CTXS) and Juniper Networks (NYSE: JNPR). Another partner, AT&T (NYSE: T), signed a four-year $30 million distribution deal with Cotendo. Israel's Globes had written then that Juniper and AT&T were also pursuing Cotendo.
Akamai is still the world's largest content delivery provider, but to stay that way it needs to keep companies like AT&T from getting deeper into the content delivery business. It also sees a threat from potential CDN industry consolidations, such as the rumored merging of Limelight Networks (Nasdaq: LLNW) and the increasingly aggressive Level 3 (Nasdaq: LVLT).
True to form, before Akamai made its bid, it sued. Almost 10 years ago, Akamai attacked CDN companies Digital Island and Speedera Networks for patent infringement. Finally worn down, Speedera sold out to Akamai. In its latest suit, Akamai was even joined by the Massachusetts Institute of Technology in its patent litigation against Cotendo.
Akamai has been followed closely by fellow Fool Tim Beyers of the Motley Fool Rule Breakers team. His insights into the company's challenges are worth reading, as is his re-assessment of his long investment in the company.
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