Cisco to buy video firm Tandberg for $3 bn

The world’s dominant maker of Web routers and switches said buying Tandberg would strengthen its position in a $34 billion market for remote business collaboration tools and help it make underused video conferencing more useful and less clumsy.

Cisco’s head of European markets, Chris Dedicoat, said the move would complement Cisco’s high-end video conferencing service TelePresence and its previous acquisition of online meeting company WebEx, expanding the number of customers it can reach.

“Tandberg has a large number of video endpoints," he told Reuters on Thursday. He added that he considered the offer of 153.5 crowns per share in cash, an 11% premium to Tandberg’s Wednesday closing price, as fair to both parties.

Tandberg shares, which had almost doubled in value this year, helped by takeover speculation, were up another 11.6% at 154.40 Norwegian crowns by 1044 GMT.

“This 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 counterbidders include Hewlett-Packard, which is also active in Web collaboration. Telecoms equipment maker Ericsson and private equity firm Silver Lake have also been linked by the market with Tandberg.

DnB NOR Markets also named in a report companies such as Juniper, IBM, Sony and Siemens as potential suitors.

However, Tandberg’s board unanimously recommended the Cisco offer to its shareholders. Cisco said it hopes to close the deal in the first half of 2010, subject to regulatory approval.

If the deal goes through Tandberg’s chief executive, Fredrik Halvorsen, will continue to lead the unit.

“We have the same vision, a vision of how people communicate and collaborate," Halvorsen said on a webcast on Tandberg’s website.

“The bid makes perfect industrial sense for Cisco," said Arild Nysaether, an analyst at Fondsfinans in Oslo. “It is obvious that there are great synergies here, but it seems that Tandberg shareholders are offered none."

JP Morgan is advising Tandberg and Lazard is advising Cisco.

Bet on Video

Cisco, which had $35 billion in cash as of 25 July, has made decisive moves outside its core network business in recent months as large technology companies start to compete in new areas, though it has been cautious about large acquisitions.

Its largest this year was of Flip digital camcorder maker Pure Digital Technologies for $590 million in stock, expanding its presence in consumer markets and betting on the growing volume of video sent over the Internet.

In March Cisco also made its first foray into the computer server market, pitting it against longstanding partners IBM and HP and hoping to exploit the ubiquity of its network eqiupment in data centres.

By acquiring Tandberg, Cisco reckons it can bring video conferencing to many more companies than the thousands who currently use it, bringing its network expertise to make the experience easier.

It will also help it compete better with US video conferencing products maker Polycom.

“We’re making video a service on the network," Dedicoat said. “It’s all about interoperability," he added, referring to the current difficulty of video conferencing, which often involves companies using technology unconnected to other systems they use.

Companies have also been stirred to try harder to make video meetings work by the recession, which has slashed corporate travel budgets and when the economy recovers companies are not expected to restore travel budgets to previous levels.

Cisco has said it has reduced its own global travel expenditure to about $260 million from $720 million, thanks to its investment in TelePresence.

Dedicoat said Cisco aimed to make remote communication a more human experience.

“We’ve all been on a conference call late at night where you’re a voice on a speakerphone at the other end of the world, and there’s 16 people in the other room," he said.

“Human beings like to meet face to face, that’s how we like to communicate. However, if you can’t meet face to face, and with the emphasis on carbon reduction, then you recreate as closely as you possibly can that face-to face meeting."

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