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Cisco Bids $3.2B For WebEx

Cisco Systems  agreed to pay $3.2 billion in cash for WebEx, a deal that will make Cisco a power in the burgeoning market for communicating via the Web.

In an indication of how seriously Cisco views the Web collaboration market's potential, the networking giant will pay WebEx shareholders $57 per share, a 23 percent premium over Wednesday's WebEx closing price of $46.20.

WebEx sells software as a subscription service that allow companies to engage in real-time Web conferences over the Internet. The company also builds software that lets users share Web-based documents and workspaces to improve productivity.

Cisco's bid, which comes a day after sometime rival Microsoft moved to purchase voice recognition application provider Tellme, plays to Cisco's unified communications strategy for helping corporate employees use the Internet to collaborate across offices.

Several vendors, including Microsoft  and IBM , view the Web as the next battleground for communications because it is more cost-effective than using phones, snail mail and other methods of sharing information.

The ability to let employees make calls, conduct instant messaging and e-mail chats and stream video conferences from all over the world with a few keystrokes has these giants salivating at the revenue opportunities.

Reiterating the company's long-time mantra that the "network is the platform," Cisco Chief Development Officer Charles H. Giancarlo said in a statement that WebEx's technology and services portfolio will give Cisco new placement in the SMB market for collaborative communications.

Giancarlo also indicated in a blog post on Cisco's Web site that WebEx's technology embodies the quality consumers so highly value in the so-called Web 2.0 climate because it allows users to collaborate via the Internet with video, voice and information.

"But this collaborative technology will make huge advances in the business effectiveness with online collaborative tools like WebEx's," Giancarlo wrote.

"WebEx was one of the early leaders in this market and remains a leader 10 years later, making inter-company collaboration accessible and easy for their customers.

A public company since 2000, WebEx has close to 2,200 employees and reported revenues of $380 million for 2006.

Should the deal close in Cisco's fourth quarter as expected, WebEx will retain its subscription-based business model as part of Cisco's development organization, with WebEx CEO Subrah Iyar reporting to Giancarlo.