Tag: Tandberg

Time Warner Cable picks up NaviSite; is InterNap next?

Ben Kolada

Contact: Ben Kolada

In the second telco-hosting rollup in less than a week, Time Warner Cable is acquiring NaviSite for $230m in cash. This is TWC’s first foray into enterprise hosting and cloud computing services, and marks the end of a tumultuous year for NaviSite that included defending itself from an unsolicited take-private and continuously retooling its business toward enterprise-class services.

TWC, the second-largest cable operator in the US, is paying $5.50 per share, representing a 33% premium over the closing price on February 1. Including the assumption of cash and debt, TWC’s offer gives NaviSite an enterprise value of $277m, or 2.1 times trailing sales and 10.8x trailing EBITDA. While the offer is roughly in line with broad market valuation, it is far below what Terremark received from Verizon. In that deal, announced just last Friday, the target was valued at 5.8x trailing sales and 24.7x trailing EBITDA. Of course, we might argue that Terremark deserves its premium, since it is much healthier and larger than NaviSite. Terremark has 16 datacenters (compared to NaviSite’s 10) spread across a large international footprint, a robust and growing cloud platform and more than twice the sales of NaviSite.

While NaviSite is set to be acquired at a lower valuation than Terremark, TWC’s bid represents a level NaviSite hasn’t seen on its own since late 2007. Further, it’s substantially above the offer that NaviSite attracted just a half-year ago. In July 2010, Atlantic Investors, which already owned one-third of NaviSite’s equity, made an unsolicited offer for the remaining shares of the company. Atlantic Investors’ bid of $3.05 per share valued NaviSite overall at $128m. Time showed that NaviSite was right in rejecting that offer, which isn’t always the case in these unsolicited bids. After spurning the offer, the company continued in its dogged determination to become an enterprise-class hosting provider throughout 2010 and divested some $74m in non-core assets to get there.

After NaviSite’s sale, speculation is intensifying about which hoster will be acquired next. We’ve written before that Savvis is an obvious target, and Rackspace is the constant focus of acquisition speculation. We might add Internap Network Services to that list. The Atlanta-based company’s shares are up 6% in mid-Wednesday trading, continuing a run since the Terremark announcement on January 27. One reason we might point to a trade sale for Internap is that the chief executive has done it before. In January 2009, the company appointed a new CEO, Eric Cooney, who has a history of growing companies and leading them to successful sales. He was previously CEO of Tandberg, which was acquired by Ericsson for $1.4bn in 2007. Since Cooney’s appointment, Internap’s shares have climbed 170%, giving the company a market cap of slightly more than $400m. Look for a full report on TWC’s pickup of NaviSite in tonight’s Daily 451.

Nordic freeze-out for Cisco

Brenon Daly

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?