Cisco's $3 Billion Tandberg Buy is Big Video Bet

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LONDON/OSLO (Reuters) – Cisco has agreed to buy Norwegian videoconferencing company Tandberg for $3 billion in cash, its latest big bet that video will drive demand for its core data transmission gear.

The acquisition will fill the wide gap between Cisco’s high-end TelePresence video meeting service for executives and its WebEx tool used by millions of office workers for online meetings, and could bring videoconferencing to a mass market.

Tandberg’s board has recommended the Cisco offer to its shareholders and Chief Executive Fredrik Halvorsen told investors that major shareholders had voiced support for the offer of 153.50 Norwegian crowns ($26.49) a share.

Halvorsen will continue to lead the unit if the acquisition goes through.

Shares in Tandberg, which had almost doubled in value this year by persistent takeover speculation, were 11 percent higher at the offer price of 153.5 crowns by 1348 GMT on Thursday, having traded at up to 156 crowns earlier in the day.

Cisco’s shares were little changed in early U.S. trade, at $23.56.

In October 2008 Tandberg ended takeover talks with an unnamed private equity player, blaming market turmoil. A person familiar with the matter said the bidder was technology specialist Silver Lake Partners.

“This (the Cisco offer) sounds like a pretty good price so I would think it will end up there,” said analyst Martin Hoff of Arctic Securities. “But the bid will stand for four weeks and there might be other (offers).”

Potential rival suitors include Hewlett-Packard, which is also active in Web collaboration. The market has also linked telecoms gear maker Ericsson with Tandberg.

DnB NOR Markets named in a report on Thursday Juniper, IBM, Sony and Siemens.

The offer values Tandberg at about 23 times 2010 earnings, analysts say, slightly above U.S. rival Polycom’s multiple of 21.7.

MORE AGGRESSIVE

The acquisition, if approved by shareholders and regulators, will be Cisco’s biggest deal since the world’s top maker of internet routers and switches bought WebEx for $3.2 billion in 2007.

Chief Executive John Chambers said Cisco, which had a cash pile of $35 billion as of July 25, would step up the pace.

“You’re going to see us more aggressive over the next 12 months than you have seen us as a company,” he told a news conference in Oslo. “We will be very aggressive with internal start-ups, partnering … and also in acquisitions.”

Technology merger activity is picking up as the market improves, and borders between sub-sectors are breaking down.

PC maker Dell recently bought IT services firm Perot Systems, and software maker Oracle bought hardware firm Sun.

Cisco said it hopes to close the deal in the first half of 2010, subject to regulatory approval. The acquisition would give the company a broad portfolio that rivals would struggle to match, although one anti-trust lawyer said he saw few issues.

“There doesn’t seem to be any significant overlap in the companies’ operations on the basis of the limited information we have available,” said Morten Nissen at Brussels law firm Bird & Bird. “I don’t see any major problems that can’t be handled.”

JP Morgan is advising Tandberg and Lazard is advising Cisco.

NETWORK TRAFFIC

Cisco says it can bring its network expertise to bear to make videoconferencing — a tool it considers underused due to the difficulty of the technology — a far smoother experience, and improve its popularity.

“Cisco’s be-all and end-all is network traffic,” Nomura analyst Richard Windsor said. “The idea is that if you improve the user experience for office workers, you improve the overall demand for traffic.”

Tandberg also has its own ‘telepresence’ offering, designed gives the impression of conference participants being in the same room, which it launched earlier this year.

It is the first that can connect to systems of rivals including those of Polycom and Microsoft, removing the need for companies to buy whole systems from those providers.

Tandberg sells about 15,000-16,000 of its regular videoconferencing units every quarter for about $7,500 each, while Cisco has sold fewer than 10,000 in total of its TelePresence systems, which cost about $250,000.

Cisco estimates the total value of collaboration tools, including everything from videoconferencing to conference calls to Google Apps, to be worth about $34 billion.

The market could also receive a boost from the recession, which has slashed corporate travel budgets that are not expected to be completely restored when the economy recovers.

Cisco says it has reduced its own global travel expenditure to about $260 million from $720 million, thanks to its investment in TelePresence as well as cuts it would have made.

($1=5.794 Norwegian crowns)