Cisco offers debt, acquisitions seen

Pedestrians walks past the headquarters of Cisco Systems Inc. in San Jose, California May 6, 2008.

NEW YORK (Reuters) - Cisco Systems Inc (CSCO.O) launched a surprisingly large $4 billion debt sale on Monday, according to IFR, raising speculation that the network equipment maker was poised to make an acquisition.

The report from IFR, a Thomson Reuters service, came the same day Cisco said it would offer senior notes to help pay back $500 million of debt due this month. It did not reveal an exact amount for the debt issue in a shelf registration filed with the U.S. Securities and Exchange Commission on Monday.

Cisco said it would use proceeds of the offering to bolster its domestic cash position, of $3 billion to $4 billion, for general purposes, as well as to repay debt. Analysts said it may use the funds for an acquisition.

"It does beg the question if they're going to make an acquisition," said Morgan Keegan analyst Simon Leopold.

Leopold declined to speculate on which specific companies it could buy, but noted that the company had alluded most recently to consumer video, virtualization software, cloud computing or data center technology as areas of interest.

"This is a company with a lot of cash. One of their core competencies is acquisitions," he said.

Shares of EMC Corp (EMC.N), long-rumored as a Cisco acquisition target, rose 56 cents, or 4.69 percent, to close at $12.51 on the New York Stock Exchange.

Cisco's $4 billion debt will be sold in two parts, with pricing expected later Monday, IFR said.

Cisco spokesman Terry Alberstein would not give details on how much debt the company was hoping to offer, but said proceeds could be used to pay for items such as stock repurchases, acquisitions or working capital.

While Cisco has about $29 billion of cash and investments and roughly $6 billion in debt, only about $3 billion to $4 billion of its cash is held in the United States.

Cisco shares fell 19 cents, or 1.12 percent to $16.85 on Nasdaq.

JP Morgan analyst Ehud Gelblum said it made sense for the company to bolster U.S. cash levels even though some investors might worry Cisco could use it for acquisitions.

"They had to replace $500 million anyway. They don't want to pay it back in dollars" from their relatively small U.S. cash pile, said Gelblum. "While they're at it, they might take out more debt. At these interest rates they will do it."

The company said Banc of America, Goldman Sachs, JP Morgan, Citigroup, Morgan Stanley and Wachovia were joint book-running managers for the offering.

(Reporting by Sinead Carew; Editing by Derek Caney, Matthew Lewis, Richard Chang)