Cisco lays out why it might let Tandberg go free

A blog entry by Cisco's strategy chief describes challenges and a need for 'fiscal prudence'

Cisco Systems may be laying the groundwork for dropping its US$3 billion offer for videoconferencing vendor Tandberg despite the emphasis it has placed on video as the future of communications.

In a blog post on Monday, Cisco Chief Strategy Officer Ned Hooper responded to reports that the deal might fall through by emphasizing the risks and costs involved and saying the purchase would have to make financial sense in the end.

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

On Oct. 1, Cisco announced an agreement to buy Tandberg for 153.5 Norwegian Kroner per share, approximately the price of the company's shares at that time. The offer was recommended unanimously by Tandberg's board of directors but still requires approval by 90 percent of the company's shareholders by Nov. 9. But shareholders representing 24 percent of Tandberg's shares reportedly don't plan to accept the deal. They think Tandberg can succeed on its own but are open to a higher offer from Cisco or another suitor, according to reports last month.

Last week, reports citing unnamed sources said Cisco would drop the offer rather than raise it. That might come as a shock to the industry after Cisco increasingly emphasized the importance of video to its networking and its business over the past three years. The company has expanded its Telepresence line of high-definition videoconferencing systems, developed automated video editing and output software, and acquired set-top box maker Scientific-Atlanta in 2006 (US$7 billion) and mini-camcorder maker Pure Digital Technologies earlier this year ($590 million). Cisco has said Tandberg's gear would be integrated into its overall collaboration portfolio.

But in his blog entry, Hooper said the potential rewards of the deal have received more attention than the risks and costs. Those include the challenges of Cisco's first acquisition of a European public company, the complexity of integrating Tandberg's Norwegian and U.K. operations, and currency exchange expenses that have added about $100 million to the overall cost of the deal, he wrote.

Hooper said the deal was a good one and called Cisco's offer a premium of more than 38 percent over Tandberg's share price before July 15, when reports of a possible transaction first surfaced. But by laying out the potential downsides of the deal while emphasizing fiscal responsibility, Hooper may have been preparing a way to back out if the deal doesn't win shareholder approval by the deadline, or showing the objectors that a fatter offer won't be forthcoming.

"We believe the time is right for Cisco and Tandberg to come together," Hooper wrote. "(H)owever, no acquisition should be pursued or completed if it runs counter to the broader principles of prudence and financial fairness."

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Stephen Lawson

IDG News Service
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