Now that Tandberg shareholders have rejected Cisco Systems' $3 billion bid, the networking giant has to decide whether to up its offer or walk away. Frost & Sullivan analyst Roopam Jain says she believes the upside of acquiring is too great for Cisco to drop its pursuit, so she expects the company to sweeten its offer for Tandberg, which makes video conferencing equipment. Cisco officials are refusing to comment, citing the current tender offer on the table.
doesn't have many options now that Tandberg
rejected the network giant's $3 billion bid for the video conferencing provider,
according to an analyst.
Cisco can either up its bid or walk away, said Roopam Jain, an analyst with
Frost & Sullivan, adding that it would make more sense for the company to
raise its offer.
"Tandberg's addition to the Cisco collaboration portfolio offers
multiple synergies and advantages for Cisco's long-term collaboration
vision," Jain said in an e-mail. "There has been a positive response
to Cisco's announcement of its intention to acquire Tandberg, and walking away
will cause some confusion in the minds of investors.
"We see Tandberg [as] a great fit for Cisco and so it's most likely
that Cisco will dig deeper and up their bid."
Cisco officials are keeping mum on the issue, citing the tender offer
process. However, in a statement, Cisco officials reiterated that they believe
"we are paying a fair price for a quality asset and our offer comes
recommended by the Tandberg Board of Directors."
Tandberg officials could not be reached for comment.
Cisco Oct. 1 announced its $3 billion bid for Tandberg, which makes video
conferencing equipment. Twenty-one shareholders holding 24 percent of Tandberg
the Cisco offer
Oct. 15. SEB Enskilda, a
Swedish brokerage representing them, said the shareholders believe the offer
undervalued Tandberg, and said they were comfortable keeping the company
independent if a higher bid from Cisco or a third party didn't materialize.
In their statement, Cisco officials said Cisco's offer represented a 38.3
percent premium to shareholders based on the closing share price on July 15,
the day before rumors of a possible deal circulated among media outlets.
However, things changed during the past three months, according to Jain. The
offer represented an 11 percent premium based on the stock price before the
deal was announced, she said, a smaller premium than Cisco has offered for
other companies, including WebEx and, more recently, Starent
"This bid is widely
being considered as a 'great deal' for Cisco," Jain said. "Tandberg
is the revenue market leader in the high-growth video conferencing market and
has a solid product line that offers significant synergies for the Cisco
Tandberg also released strong third-quarter financial numbers Oct. 15, with
a 11.6 percent jump in revenue and 10.2 percent hike in profits.
Cisco officials have targeted video conferencing as a key market. Tandberg
offers a variety of products, including some aimed at the smaller businesses,
an area in which Cisco wants to expand. Tandberg Oct. 14 unveiled its T1 offering,
part of its Total Telepresence line
of video conferencing products and a
complement to its T3, which was released earlier in 2009 and targeted at larger
Video conferencing is getting more attention from businesses looking to
reduce travel expenses and reduce their impact on the environment.
Jain said there always is the possibility of a third party jumping into the
bidding process, but that would be a surprise. Avaya has been mentioned as a
possibility, but the company currently is dealing with the work involved in its
of a large chunk of Nortel Networks' business.
"Avaya's hands are full and another large acquisition could cause some
serious integration challenges for Avaya," she said. "We think
[Hewlett-Packard] and Microsoft can be possible bidders, too, but at this
point, each of these two companies does not seem to have a well laid-out
end-to-end video strategy like Cisco."