CISCO SYSTEMS TO BUY STRATACOM.

Byline: Lawrence M. Fisher The New York Times

Cisco Systems Inc. said Monday that it had agreed to acquire Stratacom Inc. in a stock swap valued at about $4 billion. The deal will create a networking giant whose technologies and customer base will spread across many diverse market segments.

Although Cisco and Stratacom, which are based near each other in San Jose, are both networking companies, their product lines do not overlap and they have not been competitors.

Cisco is best known for routers, a key piece of hardware used in creating private local area networks, or LANs, within corporations, while Stratacom makes switching equipment used to send computer data, voice and video between offices. The equipment is primarily sold to long-distance carriers, which use it to provide data transmission services.

The logic behind the merger is that those seemingly disparate markets are in the process of converging, driven by the rapid growth of the public Internet and private intranets within companies.

Major corporations frequently have a mixture of local and wider area networking needs and must now integrate solutions from multiple vendors or hire outside concerns to provide that expertise. If both sets of technology came from a common source, the reasoning goes, the integration task will be far easier.

Cisco shares fell 87.5 cents, to close at $46.875, in Nasdaq trading, while Stratacom gained $9.1875, or 23.7 percent, to close at $47.9375.

Shares in Cascade Communications Inc., Stratacom's main rival, also rose, closing at $86.50, up $1.50. Cisco had been reported to be in negotiations to acquire Cascade last year, and owns 6 percent of the company, which it now plans to sell.

The deal will put pressure on Cisco's direct competitors - 3Com Corp. and Bay Networks Inc. - and could push Cascade into the arms of a suitor, analysts said. However, Cascade's high valuation would make it a difficult acquisition, some said. While most analysts praised the long-term strategy of merging Cisco and Stratacom, others raised questions about the price.

``This is clearly a bold step on Cisco's part into a market that is tangential to what they have historically done, and that is growing rapidly, but they are paying a lot,'' said Paul Johnson, an analyst with Robertson Stephens & Co. He said there could have been other ways for Cisco to participate in the wide area networking market, through alliances or joint marketing. ``You don't always need to own the technology,'' he said.

Under the deal, each share of Stratacom will be exchanged for the higher of either one Cisco share or $50 of Cisco stock, to be determined by the price that Cisco's shares averaged during a period preceding the merger.

John T. Chambers, Cisco's president and chief executive, said the company's customers had been asking for the kind of capability the merger would provide. ``If we do this right, we can really define how the Internet is going to evolve, and how our enterprise customers are going to evolve,'' he said in an interview.