December 22, 2011 / 12:00 PM / 8 years ago

UPDATE 4-Akamai snaps up key rival Cotendo for $268 mln

* Acquires firm after suing it last year

* Analysts say deal eliminates major competitor

* Shares jump 20 pct

By Siddharth Cavale

Dec 22 (Reuters) - Akamai Technologies Inc said it will buy rival Cotendo in a $268 million cash deal that will eliminate a tough competitor and strengthen its web acceleration business.

Shares of Akamai rose 20 percent to $31.93 on Thursday on Nasdaq and were trading at $31.38 in afternoon trade. More than 17 million shares changed hands by 13:31 ET, about 5 times their normal volume.

Founded in 2008, Cotendo, which makes software to speed up web and mobile sites, provides its technology to clients such as Facebook, Zynga, Google and AT&T.

The Sunnyvale, California-based company, which has a technology center in Israel, reportedly has an aggressive pricing strategy, which led to steady customer growth, Jefferies said in a note.

Akamai — which helps companies improve website performance by caching content and speeding up web applications — has been lagging in cloud and mobile content applications, Morningstar analyst Rick Summer said.

“Akamai has been number two where they have been trying to win customers, and they have been losing to Cotendo. They are not only buying better technology, but they are also eliminating a key competitor,” he said.

Akamai competes with Level 3 Communications and Limelight Networks, which had all faced price competition from Cotendo and other smaller rivals.

Brokerage Collins Stewart said Cotendo had anecdotally offered a 30 percent plus price discount for its services.

Under the deal, Akamai will acquire Cotendo’s outstanding equity and will assume unvested options to buy its common stock.

Brokerage Jefferies believes the deal will be modestly dilutive to Akamai, but Morningstar’s Summer reckons it will be accretive in the long term.

The deal is expected to close in the first half of 2012.

Akamai had sued Cotendo last year for patent infringement. It had also sued, and subsequently bought, Speedera in 2005.

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