Cisco bets on video growth with Tandberg bid
Network equipment maker Cisco Systems Inc struck a deal to buy Norwegian videoconferencing company Tandberg for $3 billion in a bid to dominate the high-growing market of corporate video communications.
Analysts said the move ratchets up competition, and possibly more deals among video conferencing providers like Hewlett-Packard Inc and Polycom, and underscores Cisco’s focus on video conferencing which enables workers everywhere to interact with colleagues and customers online.
The acquisition of Tandberg, a market leader in video conferencing, helps Cisco fill the gap between its high-end TelePresence video meeting service for executives and its WebEx online meeting software used by millions of office workers.
Tandberg offers a variety of desktop and other mid-range products. Its units sell for around $7,500 each, while Cisco’s TelePresence units cost about $250,000.
Jefferies analyst Bill Choi said the combined company would have close to 50 percent market share, and the deal would help Cisco speed up growth of its video business.
“We always expected Cisco to move downstream and this acquisition accelerates its time-to-market by at least 18 to 24 months,” Choi said.
Cisco sees video conferencing driving sales of routers and switches, which help direct Internet traffic and are its traditional bread and butter. Online, high-resolution video requires ample bandwidth as well as advanced network equipment to ensure smooth connections.
“They realize that if they don’t find new purposes for the network they’re going to get commoditized,” said Gartner analyst Ken Dulaney.
Tandberg said its board has recommended the Cisco offer to its shareholders and Chief Executive Fredrik Halvorsen said major shareholders had voiced support for the cash offer of 153.50 Norwegian crowns ($26.49) a share. Halvorsen will continue to lead the unit if the acquisition goes through.
GROWING MARKET
Shares of Tandberg, which had almost doubled in value this year on takeover speculation, closed 11 percent higher at the offer price of 153.5 crowns on Thursday. Cisco’s shares fell 45 cents, or 1.91 percent, to close at $23.09 on Nasdaq.
Video conferencing has taken time to gain traction, but faster Internet speeds and pressure to cut corporate travel have helped boost adoption in recent years. Cisco last quarter said revenue from TelePresence nearly doubled from a year earlier, even as router revenue fell 27 percent.
Cisco estimates the total value of collaboration tools, including everything from videoconferencing to conference calls to Google Apps, to be worth about $34 billion.
Most analysts said a rival bid was not expected, although they did not rule it out. Potential suitors include HP, which is also active in Web collaboration. The market has also linked telecoms gear maker Ericsson with Tandberg.
DnB NOR Markets in a report on Thursday cited Juniper, International Business Machines Corp, Sony Corp and Siemens.