Thursday, October 1, 2009

Cisco to Acquire Tandberg for $3 Billion in a Bid to Own the Videoconferencing Space

Mergers and acquisitions are heating up and in a move that has sent shockwaves through the video collaboration market, Cisco has made a hefty bid of $3 Billion in cash to acquire Norwegian videoconferencing vendor TANDBERG. The definitive agreement was recommended unanimously by Tandberg’s board of directors and represents an 11.0% premium to Tandberg's closing stock on Wednesday and more than 25% to the average closing price over the last three months.

The merger of the two companies will likely create an unstoppable force that both disrupts the collaboration market and extends the reach of both platforms from low bandwidth desktop and mid-range group based videoconferencing systems to HD videoconferencing and TelePresence. In nothing short of a brilliant move by Cisco to acquire rival in the space, the San Jose company will add Tandberg's portfolio of middle market end points, desktop units, multipoint control units (MCUs) and network infrastructure solutions into it's growing line of video offerings.


Video collaboration is hot and Cisco knows that. In the NY Times, Ashlee Vance highlighted Cisco's recent M&A activity:
"In recent years, Cisco, based in San Jose, Calif., has been one of the technology industry’s most aggressive companies when it comes to acquisitions. It has bought close to 40 companies in the last five years, including the $6.9 billion purchase of the set-top box maker Scientific Atlanta and the $2.9 billion purchase of the Web meeting software maker WebEx. This year, Cisco bought Pure Digital, which makes the popular Flip video camera for consumers, for $590 million."
Several years earlier, Cisco acquired web conferencing platform WebEx which has become the desktop standard for many companies and core to Cisco's unified communications experience. Cisco Chairman and CEO John Chambers pointed out that Cisco and Tandberg share similar cultures and visions on video technologies and unified communications collaboration and video communications, and noted that, “Collaboration is a $34 billion market and is growing rapidly—enabled by networked Web 2.0 technologies."

In an email to channel partners Tandberg CEO Fredrik Halvorsen wrote:
"Moving forward, our diverse mix of partners worldwide will continue to be critical to the success of the combined company. With a combined channel network, TANDBERG's Video Conferencing and Audio Visual partners will be invaluable in helping to broaden the appeal of Cisco's solutions portfolio and a welcome addition to their channel. Systems Integrators and Service Providers will also benefit from a stronger global services and delivery model. The combination of TANDBERG and Cisco will create an organization that will yield significant new opportunities for partners to sell a broader range of products and grow their businesses. Together with our partners, we believe we can drive explosive growth in this market."
In this video, the two CEOs discuss the merger.



According to current Q2 data from Wainhouse Research, TANDBERG has 40% market share followed by Polycom in a close second with 34% in the $1.5 billion-a-year market. ZDNet's Larry Dignan speculated that Polycom could be next on Cisco's M&A list and the ripples of the disruption have already been felt in the videoconferencing market. Tandberg rival Radvision, maker of MCUs, gateways and interactive video platforms for Cisco saw its stock plummet today with analysts now calling them "a friend now foe."

Earlier in the year, I had the opportunity to see a demonstration of the Tandberg Telepresence T3 system. I was impressed by the quality, the room design and interoperability with non-telepresence systems. Many in the industry know that Radvision technology was under the hood of many Cisco products. I'd like to see Cisco incorporate Tandberg's innovation and design aesthetic into their line of video collaboration tools. It's also likely that Tandberg and Cisco TelePresence customers will be taking a wait and see approach to technology purchases until the 2010 when the two companies are able to merge their product lines. The Tandberg videoconferencing products will offer an affordable HD alternative to Cisco's expensive and proprietary TelePresence.

Both companies have their own unified communications platforms to bridge collaboration across their platforms. Now with this partnership, unified communications just got more unified.

It's also interesting to note that back in February of this year Howard Licthman publicly predicted that Cisco would buy Tandberg. He has other thoughts and analysis here.

About TANDBERG
TANDBERG is the leading provider of telepresence, high-definition videoconferencing and mobile video products and services. The Company has dual headquarters in New York and Oslo. TANDBERG designs, develops and markets systems and software for video, voice and data communication. The Company provides sales, support and value-added services in more than 90 countries worldwide. TANDBERG is publicly traded on the Oslo Stock Exchange under the ticker TAA.OL. Visit www.tandberg.com for more information.

About Cisco
Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.

Update 10/9/09: Correction on Radvision OEM in Cisco products
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