Cisco to buy set-top box business in China

NEW YORK Mon Nov 2, 2009 9:46pm EST

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NEW YORK (Reuters) - Cisco Systems Inc (CSCO.O) said on Monday it has agreed to buy the set-top box business of Hong Kong-based DVN (Holdings) Ltd (0500.HK) for as much as $44.5 million, as the world's top network equipment maker continues its acquisition spree.

The move, Cisco's first acquisition aimed at the Chinese market, also shows the company stepping up investment in a fast-growing market where it faces competition from rivals like Huawei Technologies Co Ltd HWT.UL. DVN sells digital broadcasting equipment and services in China.

Cisco said that China has the most cable subscribers in the world. About one third of 160 million to 170 millions are using digital cable, and the government has mandated that all users shift to digital set-top boxes by 2015, it said.

"That presents for Cisco and other competitors in the market a very, very compelling market opportunity," said Hilton Romanski, vice president of corporate development for Cisco.

Romanski said that Cisco has invested more in China than any other market outside the United States, and the latest deal will further bolster its ability to compete locally.

"What we're trying to get access to is good local expertise that can help us think about how to make this transition, becoming an increasingly local company in China," he said.

Cisco said it will pay $17.5 million upfront, and will pay an additional amount of up to $27 million over four years. The final amount depends on sales, although Cisco declined to specify any targets.

Cisco said it also plans to enter into an alliance with DVN to utilize its software, applications and support services.

The acquired set-top box business will become part of Cisco's international cable business unit, while the DVN business will continue to run from China.

The deal is expected to close in the first half of 2010. Cisco said the initial payment will come from its foreign cash earned from overseas sales.

Cisco is also planning to use foreign cash to fund its planned $3 billion acquisition of Norwegian videoconferencing giant Tandberg ASA TAA.OL, although some Tandberg shareholders have recently balked at the offer price.

Cisco has been one of the most aggressive companies on the technology M&A front. Both its bid for Tandberg and its plan to buy wireless equipment maker Starent Networks (STAR.O) for $2.9 billion were announced in October, and Chief Executive John Chambers has said there was more to come.

Romanski said Cisco will spend more in China.

"We're going to continue to invest both equity as well as venture capital funding into the Chinese market ... and we'll continue to look for interesting acquisition opportunities as well," he said.

Shares of San Jose, California-based Cisco rose 19 cents to close at $23 on the Nasdaq.

(Additional reporting by Gabriel Madway in San Francisco; Editing Bernard Orr)

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