Cisco Lays Out Risks, Rewards in Tandberg Bid

With the deadline for its $3 billion bid for video conferencing rival Tandberg approaching and reports swirling that it will drop its offer, Cisco is looking to define the debate in terms of risk and rewards. Acquiring Tandberg can help Cisco build up its video collaboration capabilities, but there are also risks involved, including trying to buy and integrate its first European company, according to a blog by Cisco executive Ned Hooper.

Cisco Systems officials are making clear that they believe the $3 billion they're offering to buy video conferencing rival Tandberg is a fair one, in light of not only the benefits that could be captured but also the risks involved.

In a blog post Nov. 2, Ned Hooper, Cisco's chief strategy officer, said the offer is a good one for shareholders of both companies, an argument that appears to contradict the predictions of analysts that Cisco would up the bid in light of a number of Tandberg shareholders who are looking for more money for their company.

"Our offer price reflects this balance [between risk and reward] and is based on a simple premise for both sets of shareholders-fairness and value," Hooper wrote. "Is a 38.3% premium fair for Tandberg shareholders? Absolutely. Does it lock in a superior return for Tandberg shareholders and protect them from future market risk? Yes. Does it also fairly reflect risks borne exclusively by Cisco shareholders? Yes."

Hooper's blog comes after reports surfaced that Cisco may drop its bid for Tandberg rather than up the price. The $3 billion deal, first announced Oct. 1 after months of speculation, had been accepted by the Tandberg board of directors.

However, two weeks later, a group of shareholders that own 24 percent of Tandberg's stock said they would reject the deal, saying they would rather Tandberg stay an independent company, though adding they would consider higher offers from Cisco or other parties.

Cisco's offer officially expires Nov. 9, and requires a 90 percent approval from Tandberg shareholders.

Cisco officials saw Tandberg as a way of adding greater video capability to their collaboration offerings. In his blog, Hooper said the collaboration market is a $34 billion opportunity for the company and that it will rapidly evolve from voice to video.

Industry analysts saw the addition of Tandberg as a way of giving Cisco a greater presence in the SMB portion of the video conferencing space. Cisco's offerings currently are aimed primarily at larger enterprises.

Cisco has been working hard to build up its video capabilities, both through internal innovation and acquisitions, such as Scientific-Atlanta in 2006 and Flip video camera maker Pure Digital Technologies this year.

However, Hooper said Cisco needs to balance the benefits with the risks, which include successfully completing its first ever purchase of a European company and the integration of sales and engineering teams that are spread over the United Kingdom and Norway, where Tandberg is based.

"The bottom line is that Cisco will always act with fiscal prudence," he wrote.