Cisco To Sweeten TANDBERG Offer

On October 1, 2009 Cisco announced a $3 billion bid to acquire TANDBERG, the leading vendor of telepresence and video conferencing equipment. The offer is only an 11% premium over the publicly traded stock price before the announcement, and although recommended by the TANDBERG board of directors, the Norwegian institutional shareholders of TANDBERG, representing 24% of the outstanding shares have rejected the Cisco offer to acquiring all the outstanding shares for $3 billion. 

This complicates Cisco's acquisition since it is clear they will not get the required 90% shareholder approval by November 9.

Here's why Cisco will sweeten the deal:

a. Cisco has the cash. With a large and liquid balance sheet ($44B in current assets) Cisco can afford it.

b. Buying TANDBERG is the fastest way for Cisco to achieve its strategic goal of $1 billion in revenues for telepresence within 3 years (in fact they'll be there when this transaction is completed).

c. There are no other potential buyers for TANDBERG (other than Private Equity firms which expressed interest in acquiring TANDBERG last year who would then try to sell it to Cisco for a 2x or 3x premium), so the choice is to complete the deal at a slightly higher price ($0.5-1 billion more ought to cover it) or to let TANDBERG continue as an independent company and independent competitor to be acquired at some future time.

d. The possibility of c is a particularly good reason to raise the price as Cisco has now acknowledged their own flawed product portfolio and spoke about how the integrated organization will strengthen value for customers. It's worth a couple of hundred million dollars to Cisco to avoid the embarrassment of trying to explain to customers why it was worth $3 billion but not $4 billion.

Here's my related analysis on this deal.

This author consults with leading institutions through GLG