Oct. 13 (Bloomberg) -- Cisco Systems Inc., the largest maker of networking equipment, agreed to buy Starent Networks Corp. in a deal valued at $2.9 billion, its second multibillion- dollar acquisition in less than two weeks.

Cisco will pay $35 a share in cash and assume outstanding equity awards, according to a statement today. The per-share price is 21 percent more than Starent’s closing price yesterday. Cisco, based in San Jose, California, expects the transaction to add to earnings by fiscal 2012.

Starent’s equipment helps wireless carriers understand the kind of traffic that’s crossing their networks, enabling speedy routing of that information to mobile devices. The acquisition helps Cisco benefit from the increasing demand for phones such as the iPhone and BlackBerry, which boost data traffic, said Joanna Makris, an analyst at Brigantine Advisors.

“Cisco sees the consumer trend toward the pervasive adoption of mobile devices,” New York-based Makris said. “They want to find a way to drive network traffic and the growth of their infrastructure business.”

Makris recommends holding Cisco shares and buying Starent, and owns neither.

Global data traffic probably will more than double every year through 2013, according to Cisco. Cisco aims to add technologies that boost Internet traffic, increasing demand for its routers and switches. With Starent, Cisco may be able to take a bigger portion of carriers’ budgets as they upgrade their networks to handle growing Internet traffic, Makris said.

Slowing demand at Cisco’s main Internet-networking business has led to three straight quarters of sales declines. On Oct. 1, Cisco agreed to buy Norway’s Tandberg ASA for about $3 billion to expand its line of videoconferencing products.

Video Traffic

Starent, based in Tewksbury, Massachusetts, rose $4.88, or 17 percent, to $33.91 at 4 p.m. New York time on the Nasdaq Stock Market. Cisco added 11 cents to $23.89. Barclays Plc advised Cisco, and Goldman Sachs Group Inc. assisted Starent.

Cisco has bought about 130 businesses in its 25-year history, using them to enter new markets, such as cable set-top boxes and home wireless routers. Cisco has about $35 billion in cash and short-term investments, and Chief Executive Officer John Chambers said Oct. 1 the company will be “aggressive” and “active” in making more acquisitions.

“Cisco has historically been an asset buyer during downturns,” said Joel Levington, director of corporate credit for Brookfield Investment Management Inc. in New York. “With cash not earning much, acquisitions can be an accretive alternative.”

Verizon Relationship

Starent will pay a 3 percent breakup fee if it decides to take a rival offer, Ned Hooper, head of Cisco’s acquisition efforts, said today on a conference call. He also said the company plans to make more acquisitions.

Starent’s main customer is Verizon Wireless, which accounted for about 70 percent of sales in the second quarter, according to Makris. Other customers include Vodafone Group Plc and Sprint Nextel Corp., according to Starent’s Web site.

“Starent’s efforts to diversify away from Verizon may have been an uphill battle,” Anil Doradla, an analyst at William Blair & Co. in Chicago, said today in a note to investors. “With Cisco’s backing, we believe the company is better positioned to compete for business with Tier-1 mobile operators outside Verizon.” Doradla has a “market perform” rating on Starent.

Venture Investors

Founded in 2000, Starent received venture funding from firms including Matrix Partners, North Bridge Venture Partners and Highland Capital Partners. The company had its initial share offering in 2007. North Bridge owns 11 percent of Starent, making it the second-biggest owner, according to Bloomberg data.

Starent will become the new Mobile Internet Technology Group within Cisco, led by Starent CEO Ashraf Dahod. Starent’s technology will help Cisco’s customers better manage their networks as video traffic increases, Hilton Romanski, Cisco’s vice president of corporate development, said in an interview.

“Video traffic will make up 64 percent of the world’s data traffic by 2013,” Romanski said. “That puts pressure on the providers. The combination of Cisco and Starent will mean faster feeds, better content, more robust interaction with your mobile device.”

To contact the reporter on this story: Rochelle Garner in San Francisco at rgarner4@bloomberg.net

Last Updated: October 13, 2009 16:09 EDT