Update: Cisco to buy videoconferencing vendor Tandberg for $3B

Deal will enhance Cisco's collaboration products

Cisco Systems today said it has signed an agreement to buy videoconferencing vendor Tandberg for about $3 billion.

Tandberg's video endpoints and network infrastructure products will be integrated into Cisco's collaboration products, according to Cisco. When the deal is done, Tandberg's CEO Fredrik Halvorsen will lead a new TelePresence Technology Group at Cisco, the company said.

Cisco has high hopes for what the combination of the two companies will be able to accomplish in terms of expanding the whole videoconferencing market, said Cisco CEO John Chambers, who spoke to investors and reporters on a conference call.

Cisco has been pushing videoconferencing for a number of years, and is already reselling some of Tandberg's products, according to Steve Blood, vice president at market research company Gartner.

The acquisition plugs the gap between Cisco's HD-based telepresence systems and its Unified Video Advantage system for desktop videoconferencing by adding room-based conferencing that supports standard definition video, he said.

There is very little overlap between the products of Cisco and Tandberg, and the companies also have very similar cultures, according to Chambers.

It is a good acquisition and will help Cisco get a leg up, but the company paid a lot compared to, for example, the $900 million that Avaya paid for NortelNetwork's enterprise business, according to Blood. Cisco is better-equipped to expand the videoconferencing market than Tandberg on its own or competitors such as Polycom, Blood said.

"It is a good acquisition, but Cisco paid a lot," said Blood, adding that Cisco is better equipped to grow the videoconferencing market than Tandberg on its own or competitors such as Polycom.

The acquisition can also turn out to be good news for Cisco's adjacent businesses, according to Blood. The increased use of videoconferencing will also drive network traffic on both local and wide area networks, which means that Cisco will be able to sell more routers and switches, Blood said.

Cisco's offer represents an 11% premium to Wednesday's closing price of Oslo-based Tandberg's stock. Today, Tandberg's stock traded slightly above the 153.50 Norwegian Kroner (US$26.44) per share that Cisco is offering.

The proposal was recommended unanimously by Tandberg's board of directors.

The deal comes at the right time, and it's the right transaction, according to Halvorsen, who also spoke on the conference call. The investors in Tandberg should thoughtfully consider the offer, he said.

"I think it's a win-win for everybody involved," Chambers said .

The acquisition is expected to close during the first half of 2010, and is subject to customary closing conditions, including regulatory review in the U.S. and elsewhere.

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