UPDATE 6-Cisco bets on video growth with Tandberg bid

* Deal helps Cisco broaden video conferencing product line

* Offer 11 pct above Tandberg’s previous closing price

* Cisco CEO says to get more aggressive on acquisitions (Adds Polycom comment, background on Cisco’s past deals)

NEW YORK/OSLO, Oct 1 (Reuters) - Network equipment maker Cisco Systems Inc CSCO.O struck a deal to buy Norwegian videoconferencing company Tandberg TAA.OL 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 HPQ.N and Polycom PLCM.O, 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.


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 GOOG.O 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 ERICb.ST with Tandberg.

DnB NOR Markets in a report on Thursday cited Juniper JNPR.O, International Business Machines Corp IBM.N, Sony Corp 6758.T and Siemens SIEGn.DE.

The latest offer values Tandberg at about 23 times 2010 earnings, analysts say, slightly above U.S. rival Polycom’s multiple of 21.7.

Analysts said the deal puts pressure on Polycom and other Tandberg rivals, particularly Radvision RVSN.O, which sells 40 percent of its products through a partnership with Cisco.

Radvision shares fell 32.8 percent while Polycom fell 4.4 percent, even though CEO Robert Hagerty told Reuters Polycom could be an acquisition target. [ID:nBNG409548]


The acquisition would be Cisco’s biggest since it bought WebEx for $3.2 billion in 2007, and follows its purchase of Flip Video digital camcorder maker Pure Digital Technologies.

Such deals have been crucial to Cisco, which has grown from a company with $1.2 billion in annual revenue to around $40 billion since John Chambers took the CEO role in January 1995. Chambers said Cisco, which had a cash pile of $35 billion as of July 25, would step up the pace.

“You’re going to see us more aggressive over the next 12 months than you have seen us as a company,” he said. “We will be very aggressive with internal start-ups, partnering ... and also in acquisitions.”

Technology merger activity is picking up as the market improves. PC maker Dell Inc DELL.O recently bought IT services firm Perot Systems PER.N, and software maker Oracle Corp ORCL.O bought hardware firm Sun Microsystems Inc JAVA.O.

Cisco said it hopes to close the deal in the first half of 2010, subject to regulatory approval. Antitrust lawyers said the deal would give the company a broad portfolio that rivals would struggle to match and that regulators could take a close look at the deal, but most said it would likely get through. ($1=5.794 Norwegian crowns)

Reporting by Ritsuko Ando and Aasa Christine Stoltz; Additional reporting by Georgina Prodhan and Quentin Webb in London, Joachim Dagenborg, Tejre Solsvik and Wojciech Moskwa in Oslo, Diane Bartz in Washington, S. John Tilak in Bangalore; Editing by Greg Mahlich, Matthew Lewis and Richard Chang