Nordic freeze-out for Cisco

Contact: Brenon Daly

With a fat treasury and well-drilled deal team, Cisco Systems typically storms through acquisitions. Over the past five years, the networking giant has announced some 50 purchases, including more than a few that combined big money and quick moves. (For instance, several sources have indicated that Cisco snatched WebEx Communications away from IBM in just a week, after Big Blue had the online conferencing company all but locked up.) But it appears that something in Cisco’s M&A methods has been lost in translation in its reach across the Atlantic for Norway’s Tandberg.

A little over a month ago, Cisco announced plans to hand over $3bn in cash for Tandberg, as a way to bolster its videoconferencing lineup. Although Tandberg’s board of directors backed the offer, a fair number of shareholders have balked at what they see as Cisco’s low-ball bid. Critics point to the fact that Cisco’s all-cash offer values Tandberg just 11% higher than the company’s closing stock price the day before the announcement. (We noted recently that the premium was just half the amount that Cisco is paying for Starent Networks, which was announced a week after Tandberg.)

Further complicating Cisco’s play for Tandberg is the fact that 90% of shareholders at the Norwegian company have to agree to the deal. Already, holders of about one-quarter of Tandberg equity have said they won’t support Cisco’s proposed purchase – at least not at its current valuation. We suspect that Cisco may well end up having to reach a bit deeper to land Tandberg. (The company gave itself more time on Monday, bumping back the expiration of its tender offer for Tandberg until November 18.) And as the standoff drags on, other vendors are closing their own videoconferencing deals. On Wednesday, Logitech said it will spend $405m in cash for LifeSize Communications. Logitech’s bid values LifeSize at slightly more than 4x trailing sales, which is not out of line with Cisco’s bid for Tandberg of 3.6x trailing sales.

It wouldn’t be surprising to see Cisco top its existing offer for what’s undoubtedly a valuable asset. Tandberg would give Cisco a solid mid-level videoconferencing offering, slotting nicely between its high-end Telepresence product and the low-level Web conferencing and collaboration offering it got when it picked up WebEx. In terms of markets, adding Tandberg would significantly expand Cisco’s reach in Europe, particularly with government customers. And as a bonus, securing Tandberg would prevent the target from landing with rival Hewlett-Packard, which has its own videoconferencing wares. (Although HP actually beat Cisco to market with its Halo product, it has little to show for its early advantage.) We doubt that would happen, but wouldn’t it be a kicker if HP pulled a Cisco on Cisco, quickly firing off a topping bid and walking away with Tandberg?