Cerent Corporation: IPO or Strategic Sale?

By Bethany Coates, Andrew Rachleff
2008 | Case No. E300
Carl Russo, CEO of optical equipment maker Cerent Corporation, leaned back in his desk chair and reflected on the recent developments at his company. Cerent had just filed its S-1 registration document with the SEC on July 22, 1999, and was now less than a month away from an initial public offering. Similar optical networking equipment companies had recently gone public with enormous success. Russo felt that, since Cerent’s product offerings and growth rate were even stronger than its peers, it could expect to have a multi-billion dollar market value once its shares were priced. Cerent’s board had decided that going public was the optimal way to create value for the company’s employees and shareholders. It would also provide the company with enough liquidity to carry out its growth strategy of acquiring other players in its industry. Yet, at the last minute, Cisco Systems complicated those plans. Executives from the networking giant approached Russo on August 11, 1999 with an acquisition offer that would produce a huge gain for all of Cerent’s shareholders and make millionaires out of many of the employees. Russo was scheduled to present a final financing recommendation to Cerent’s board later that week. He wondered whether he should pursue the original strategy of raising capital from the public market or accept Cisco’s offer.
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