Cisco to Expand Its Video-Conference Room With $3B Tandberg Buy

Cisco Systems (Nasdaq: CSCO) has made a huge play in the video-conferencing industry, acquiring one of the world's largest makers of such equipment for close to US$3 billion.

Cisco is acquiring Tandberg for 153.50 Norway kroners (US$26.37) a share in cash -- an 11 percent premium over Tandberg's closing price on the Oslo exchange.

The proposal was recommended unanimously by Tandberg's board of directors, and the deal is expected to close in the first half of 2010 subject to customary conditions. Cisco expects the acquisition to be accretive to its non-GAAP earnings in fiscal year 2011.

Cisco has an extensive portfolio of video-conferencing products and services -- not the least of which is its Software as a Service acquisition WebEx. Clearly, the company wants to dig even deeper into this space, establishing a foothold in the high-end hardware segment of the markets.

Chairman and CEO John Chambers noted that the market for collaboration technologies has reached $34 billion and is growing rapidly. TelePresence and high-quality video, in particular, are becoming a larger segment of the broader collaboration market.

Outline of a $3B Acquisition

As part of the acquisition, Cisco will establish a new TelePresence technology group to be headed by Tandberg CEO Fredrik Halvorsen. He will report to Marthin De Beer, SVP of Cisco's emerging technologies group.

Tandberg's video endpoints and network infrastructure solution will be integrated into Cisco's collaboration architecture across its entire product portfolio, from desktop to TelePresence.

Cisco will continue to invest in the European market, maintaining Tandberg's Norway operations as well as Cisco's service provider video team in Kortrijk, Belgium. Initial statements by the companies suggest that Tandberg's 1,500 employees will remain on board.

Tandberg is a great acquisition for Cisco as it broadens its portfolio of products and services in IP-based video conferencing, said N. Venkatraman, a business professor at Boston University.

"With WebEx and TelePresence, Cisco has already signaled its vision to be a key player in how individuals and corporations set up their multipoint video communication capabilities," Venkatraman told the E-Commerce Times. "Tandberg brings valuable complementary capabilities in the form of specialized software to connect different types of technology."

The deal also allows Cisco greater leverage in defining the architecture of IP-based video conferencing for the industry, he said. "Cisco needs to build its software capabilities, and this makes Tandberg a perfect acquisition for them."

The Cisco Portfolio

Cisco's video-conferencing portfolio includes WebEx on the very low end and its TelePresence portfolio on the high end. Indeed, this is one of its fastest-growing product categories, having recently been enhanced to include additional telecom connection support and applications for more collaborative options.

Tandberg's technology falls between these two ends -- albeit closer to the high end, Scott Testa, business professor at Cabrini College, told the E-Commerce Times. There will be some overlap when Tandberg joins the product line-up initially, he said, "but it is largely a very complementary acquisition for Cisco."

It is also very timely in terms of market trends, Peter Cohan of Peter Cohan & Associates, told the E-Commerce Times. "Business travel is one of the first places companies cut back in the recession -- and as they continue to be cost-conscious, an investment in video-conferencing equipment may seem to be a good buy."

Market Dynamics

With Tandberg under Cisco's wing, there will be a market realignment, In-Stat analyst David Lemelin told the E-Commerce Times.

The key competitors in the space are Avaya, Cisco, HP, LifeSize, Microsoft, Polycom, Skype and Tandberg, according to In-Stat research.

Microsoft is the most-used vendor among small businesses, while Polycom is the most used vendor among mid-size and enterprise businesses. Overall, Cisco saw the highest increase of users from 2007 to 2008, the company found.

As Cisco digests the Tandberg acquisition, Lemelin said, "it will be interesting to see how resellers and channel partners react. The sales channel will be closely watching these vendors in terms of what they can best recommend to their own customers."