Why Cisco Sweetened Its Deal For Tandberg

Posted by: Peter Burrows on November 16, 2009

Cisco has sweetened its acquisition offer for Norway-based videoconferencing company Tandberg by 11%, to $3.4 billion. That should be enough to satisfy the 90%-plus of investors who had withheld their support for the existing deal. The company says more than 40% of Tandberg shareholders, including the largest ones, have “pre-accepted the offer.” More details here from Bloomberg.

I’d heard that an increase of 10% to 15% would likely get the deal done, so this improvement seems designed to accomplish two simultaneous goals: to put the acquisition over the top, without sending the message that Cisco will panic and radically pay up when shareholders of acquisition targets hold out for more. That’s critical for a company as acquisitive as Cisco, which has done four large deals in just the last 45 days. At Cisco’s shareholder meeting on Nov. 12, Cisco CEO John T. Chambers warned that “I’ll walk” rather than overpay. “We’re not going to pay a price that we don’t think is good for shareholders.”

One way or another, Chambers needed to get this deal done. He has said that video is his number one strategic priority, and video-conferencing in particular is a great opportunity for Cisco. Few, if any, forms of traffic chew up bandwidth and require more sophisticated routing and switching than videoconferencing—which needs to be not only high-res, but real-time.

And buying Tandberg was clearly the best way to accelerate his grand video plans. The company is not only the market leader in videoconferencing gear, but it’s by far the hottest player in the market—not only with the mid-tier conference room systems that are the bulk of the industry, but also for high-end telepresence systems like the ones Cisco sells. Multiple industry sources I’ve spoken to say Tandberg routinely beats Cisco in deals for these systems, which create the illusion that you’re actually sitting in the same room with other attendees, wherever they may be.

Also, Cisco needed to find a way to embrace open standards for its telepresence offerings. Currently, Cisco’s systems only work with other Cisco systems, for the most part. That’s unacceptable, for a company that built its Internet equipment empire by championing the most important open standard of them all—the Internet Protocol. Analysts say Tandberg is a leader not only in product innovation, but in making its gear inter-operate with other brands.

Here’s a video of Chambers and Tandberg CEO Fredrik Halvorsen talking about the deal at the time.

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Reader Comments

tom mackenroth

November 16, 2009 11:58 AM

Please note Glowpoints (GLOW) news release of Oct 1,2009.
Thanks

Anonymous

November 16, 2009 12:38 PM

I would suggest that as a journalist, you check your facts when posting articles and making statements like:

"Currently, Cisco’s systems only work with other Cisco systems, for the most part."

and...

"Multiple industry sources I’ve spoken to say Tandberg routinely beats Cisco in deals for these systems"

If either of these were true, 3rd party research organizations wouldn't have published research reports showing that their research is pointing to Cisco as having over 60% market share in the immersive video space (telepresence).

Additionally, many organizations have deployed Cisco's TelePresence solutions in which they are using them to communicate with all other standards based Video Conferencing solutions from the likes of Polycom, Tandberg, Sony, Lifesize, etc.

Industry insider

November 16, 2009 03:26 PM

To Anonymous:
Don't know what background if any you might have in the telepresence/video industry, but Cisco's "interoperability" has very well known limitations - yes, you can interoperate with 1 screen standard-based devices but with low quality. No way to do 3 screen Telepresence interoperability.

Both in terms of interoperability and end-to-end Telepresence solution from the immersive studio to the desktop, Tandberg is recognized by most analysts as the clear leader.

TheBrit

November 16, 2009 07:31 PM

Re the comments from Anonymous.
Standards based vs Propietary:
Cisco TP is a completely propietary solution that was never designed to in a standards based environment and can only achieve any type of interconnectivity at the compromise of the feature set and at very low resolutions. When asked in Nov 2008 by Info Week Mr Chambers commented " I don't care because everyone is going to be buying Cisco". Astounding news to all the HP Halo, Teliris, Polycom and Tandberg immersive technology clients.

Market Share:
Tandberg and Polycom have seriously eroded the Cisco thrust. Major projected wins by companies like Regus (reportedly a $45 million contract) were reverted to Tandberg and Polycom who both supply standards based solutions. In factoring market success the actual installed volume should also be considered based on purchased units and not just the " seed" units that have swelled the Cisco numbers considerably.

All in all the journalist was quite accurate on this occasion.

TheYank

November 16, 2009 11:12 PM

TheBrit

All in all the journalist was quite accurate. Hmmm You state that the TelePresence can work with other units but the feature set does not meet the your needs (achieve any type of interconnectivity at the compromise of the feature set and at very low resolutions).

So how can you state that and also that the journalist was accurate? Comment of: Cisco will "ONLY" work with Cisco. That does not jive with your comments that TelePresence does work but at lower resolutions. Seriously flawed logic you got there.

Also, I would ask for data from Tandberg and Ploycom on how many 3 screen units they have sold.

I think the issue gets blurred (like your logic above) when HD devices are discussed as TelePresence endpoints. Audio, lighting and video are part of the experience and dropping audio and lighting and calling the device TelePresence is another way to flaw the data.

But....I am sure you and the author are okay with that.

The InBetWeenie

November 17, 2009 04:46 AM

Nice to see in the virtual world of big boy's video conferencing that there is still a special relationship!

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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