Cisco Systems Inc. has been given approval by China’s State Administration of Market Regulation, the country’s antitrust regulator, to acquire Acacia Communications Inc.

Cisco first announced that it was intending to acquire networking chip maker Acadia for $2.6 billion in July 2019 but failed to obtain approval from the Chinese government. Acacia tried to back out of the deal Jan. 8, citing the lack of approval in China within the timeframe specified in the acquisition agreement. Cisco then upped its offer to acquire Acacia to $4.5 billion Jan. 14.

It’s unlikely Chinese regulators started an investigation from scratch, so the higher acquisition price may have been a motivating factor. Another factor in the quick change of heart may have been the forthcoming change of government in the U.S. The Trump administration has banned various Chinese companies from gaining access to U.S. technology, whereas the incoming Biden administration is seen likely to be more favorable to the Chinese Communist Party.

Officially, the SAMR said in a long statement that the length of the inquiry into the deal was the result of concerns about market concentration in optical transmission equipment, in particular data centers and 5G technology.

Under the conditions of the approval, the merged entity must fulfill existing contracts with Chinese clients and keep commercial terms unchanged. According to the Wall Street Journal, the conditions also stipulated that Cisco and Acacia continue supplying certain products without discrimination and unreasonable terms. The terms of the approval remain in place for five years.

Acacia, which was founded in 2009 and went public in 2016, develops, manufactures and sells high-speed coherent optical interconnect products. One of its main focus areas is digital signal processors, which manipulate the properties of the light beams used to transmit data over optical networks to increase the distance over which packets can be sent and the amount of information that can be sent at once.

For Cisco, the acquisition of Acacia gives it a new source of revenue growth in the infrastructure market. The two companies already worked closely together. Cisco was one of the biggest buyers of Acacia’s chips, accounting for 15% of Acacia’s revenue in the first nine months of 202o.

The deal, which still needs to be approved by Acacia shareholders, is expected to close in the first quarter.

Photo: Cisco