Cisco Playing Chess Against Microsoft’s Skype Buyout

Cisco Systems (NASDAQ:CSCO) has officially filed an appeal with European regulators, asking that they reconsider their unconditional approval of Microsoft’s (NASDAQ:MSFT) $8.5 billion acquisition of Skype. The networking giant isn’t trying to get the deal scuttled, but instead is asking that there be some interoperational conditions placed on Microsoft before the deal is allowed to go through.

At the core of Cisco’s apeal, which was announced on the company’s corporate blog, is that Skype’s internet calling service isn’t presently compatible with other audio and video calling systems, many of which use Cisco and other companies’ technologies as their standard.  Microsoft plans to combine Skype with its enterprise-related Linc voice and video calling software.  Since both Skype and Linc use proprietary technology for their calling services, they’re not presently compatible with other systems. Cisco joined with European IP calling service Messagenet in filing the appeal; both companies had commented on the deal to the European Commission in hearings prior to the approval.

According to All Things D, Cisco attempted to reach a compatibility deal with Microsoft, but was unsuccessful.  When the initial acquisition deal was announced in May, Microsoft CEO Steve Ballmer stated that the service would be integrated with other Microsoft products, including Hotmail, X-Box consoles, and Windows Phone.

Skype has grown to become a global phenomenon, and presently reaches about 700 million users worldwide.  In 2010, the company reported revenue of $860 million against a loss of $7 million, and had plans to go public last spring before reaching the acquisition deal with Microsoft. At the time, the company was running into issues trying to expand from its popular free service to corporate or business customers.  Service failures and other issues undermined their initial strategy, and the deal with Microsoft perhaps rendered that strategy moot.

Cisco’s video conferencing is chiefly only used in the corporate sector, unlike Skype;  it had tried to enter into Skype’s marketplace with Umi, but shut it down last year as Cisco underwent a very well-publicized corporate restructuring.  Right now, about 50,000 companies worldwide utilize Cisco’s equipment.

Here’s how these stocks are reacting to the news:

Cisco Systems, Inc. (NASDAQ:CSCO): CSCO shares recently traded at $20.03, down $0.04, or 0.2%. They have traded in a 52-week range of $13.30 to $20.49. Volume today was 27,720,097 shares versus a 3-month average volume of 45,698,000 shares. The company’s trailing P/E is 15.56, while trailing earnings are $1.29 per share.

Microsoft Corporation (NASDAQ:MSFT): MSFT shares recently traded at $30.15, down $0.1, or 0.33%. They have traded in a 52-week range of $23.65 to $30.80. Volume today was 25,753,317 shares versus a 3-month average volume of 54,832,500 shares. The company’s trailing P/E is 10.94, while trailing earnings are $2.76 per share.

To contact the reporter on this story: Jonathan Morris at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com