I wrote in The Upstart Startup, “Carl’s payday of $342 million eclipsed that of Bill Gates whose shares were worth $321 million when Microsoft went IPO in 1986 and bested that of Jeff Bezos whose personal wealth increased by $232 million when Amazon went public in 1997.” This sudden “paper wealth”  created a firestorm of comments from residents of the normally sedate agricultural community of Sonoma County, California. The upshot, as I summarized, “One recurring theme from acquisitions like these was a sign of the impending intellectual culture that would further distance the white-collar worker from the blue-collar worker.”
Cerent Blocked by Cisco From Going Public
Carl’s recollection retains its aura of finality to this day. Cerent would not achieve the fork in the path that the majority of its employees expected to see—to “go public” in the not too distant future. John Chambers blocked that path by acquiring Cerent. He was intent on getting into the service provider space in a big way and after five years of unsuccessfully trying with his mainly enterprise-centric management team, Cerent would satisfy the Cisco CEO’s desire. The by-product of acquiring Cerent with its optical transport product offering was an added bonus. A big price tag came with his overwhelming desire to take on Cisco’s long-standing rivals—Nortel and Lucent—in the service provider market.
The cover charge was $6.9 billion.
Carl recognized through his dealings with Mike Volpi, Chambers’ right-hand man for acquisitions, what Cisco could do or was about to do. The Internet giant could, and would, always outbid Cerent for any acquisition it sought to grow organically in the optical space.
Carl explains, “The reason we were done was because our strategy to grow the business dramatically was through acquisition. With Cisco making a $3.2 billion offer for a privately-held company that had no public market value meant that the board of directors at Cisco had made a strategic decision not just to acquire Cerent, but to also [become a major player] in the optical space.”
In his “last” meeting with Volpi before the Chambers encounter, Carl had an epiphany, “I knew that we were done, in that microsecond, and I was already in the mode of ‘I need to go extract the largest number I could from Cisco.’”
Cerent was a means to an end. Cisco would get into both the optical space and the service provider space regardless of the cost. Carl recalls, “This meant that every single time we went to acquire an optical company, guess who would end up bidding against us? This meant that our strategy for expansion by acquisition was as good as dead. It wasn’t that I was worried about Cisco competing with us; it was that strategically they had closed off our entire expansion strategy. Which means that all you’re doing is riding a product lifecycle inside of a market cycle, which, by the way, is just like what a million other companies have done, such as AFC, Redback, and others. They go up with the product and go down with the product. And that was it. We were done.”
Extracting the Best Deal for Cerent Shareholders AND Employees
Carl’s next microsecond of thinking focused on closing the best deal he could with Cisco. He knew that Cerent’s S-1 had been filed, but the company had not yet conducted an investor road show. Mike Volpi’s arrival with a $3.2 billion offer appeared to have forestalled that plan to go public. One insight that Mike and Carl shared was that market valuations were nuts. The whole industry appeared to be in a bubble, yet almost no one seemed to think the bubble would burst.
Carl promptly informed Mike that Cisco’s latest $3.2 billion offer wasn't “anywhere close to what would make sense.”
In almost no time, an offer of $7.5 billion was settled on , more than double the [earlier proposed amount]. More green sweetened the deal and moved the needle closer to the ten billion dollar valuation that industry watchers estimated Cerent to be worth. Carl knew this was about as good as it would get, “Our ten billion dollar valuation and their 7.5 billion dollar offer . . . there is no comparison because we would have had a volatility on our ten billion valuation in the open market like there was no tomorrow.”
Carl knew that going public left companies vulnerable to huge swings in market cap at the hint of any bad news. Both Ciena and AFC were victims of swing time. He saw how Ciena’s valuation was hammered when revenues slipped for a quarter or two. Being acquired by Cisco for a fair price with Cisco shares gave investors, managers, and employees financial wealth that was less sensitive to the whims of the market. Besides, Cisco was the Wall Street darling of the late 1990s and its stock was on a skyward trajectory. Carl recalls, “What happened next, was that we worked on terms and I left the number of shares blank.”
It was a surreal experience on August 13th for Cerent’s CEO. Carl had lunch with John in Cisco’s familiar building 10 on 300 East Tasman Drive, San Jose. He recalls, “I was sitting in the meeting room next to Mike’s office. I’ve got the latest Cisco newsletter in front of me. It had the classic Cisco drawing—all around the edge of the picture there were boxes and routers and then the lines that went into the PSTN cloud, but there was no equipment in there.”
Cisco viewed the telephone network cloud and the transport connections from Cisco’s enterprise world into the network cloud as some unknown entity. Carl adds, “I was literally holding the drawing in my lap and John walks in behind me, ‘Hi, Carl.’”
“Hi, John.” Carl pointed at the picture and at the cloud and said, “I think you’re missing something here.”
John laughed and said, “Well, let’s talk about that.”
A deal was finally hammered out during that session. Carl recalls, “When we got to the one hundred million shares for the remaining ninety percent or so of the business, which was $6.9 of the $7.5 billion total, that was that.”
And that’s how the financial aspect of the deal was done. Just John and Carl sitting at a table going back and forth. As Carl said, no deal would be done unless it was done with the CEO of the acquiring company.
And the rest is history.
 Of the three CEOs, Bill Gates has since become the richest person in the world, valued at $75 billion and Jeff Bezos the fifth most wealthy, worth some $45.2 billion, based on 2016 valuations. If you added up the worth of the top eight wealthiest people in the world, this would equal that of the wealth of half of the population on Earth, some 3.6 billion people.
 The difference between the $7.5B dollar deal discussed between Russo and Chambers and the oft-reported acquisition price of $6.8 or $6.9 billion is the existing 10 percent stake Cisco had already invested in Cerent.