(Bloomberg) -- China’s State Administration for Market Regulation issued a conditional approval of Cisco Systems Inc.’s purchase of Acacia Communications Inc., removing a regulatory hurdle that had nearly torpedoed the deal.The approval is conditional on the companies agreeing to continue to honor contracts with existing clients in China for the next five years from the effective date, the regulator said in a release dated Jan. 14 and posted on its website on Tuesday. Among other requirements, the combined entity should continue to provide Chinese customers with access to its products “based on the principles of fairness, reasonableness and non-discrimination,” according to the statement.Last Thursday, Cisco raised its offer for Acacia by more than 70% to close a deal that the target company had tried to walk away from. The two firms had been in a legal dispute after Acacia canceled the deal because it said Cisco didn’t get sign-off from Chinese regulators ahead of a Jan. 8 deadline for closing the transaction.
Read more: Cisco Lifts Acacia Bid to $4.5 Billion to Clinch the Deal
Cisco said in July 2019 that it planned to buy the Maynard, Massachusetts-based optical component maker to capture a bigger chunk of spending on 5G telecommunications networks. Since then Acacia’s value has surged with other tech shares. San Jose, California-based Cisco last week raised the offer to $115 a share in cash, valuing the deal at $4.5 billion.
Cisco, which has a market value of $192 billion, has not participated in that rally in tech stocks, and its shares fell 6.7% in 2020 as the maker of machines that run the internet struggled with weaker orders from corporations and government agencies.
Under Chief Executive Officer Chuck Robbins the company is trying to recast itself as a provider of networking services and software. It’s also trying to go deeper into components to make sure it benefits from the efforts of some of the largest buyers of networking hardware to define and build their own equipment. Cisco is Acacia’s largest customer, according to Bloomberg supply chain analysis.Acacia’s attempt to walk away reinforces U.S. technology companies’ challenges navigating China’s regulatory landscape in the midst of a U.S.-China trade dispute.