Cisco to buy firm for $2.97 bn to gain video equipment

Cisco Systems Inc, the world’s largest maker of networking equipment, agreed to buy Tandberg ASA for 17.2 billion kroner ($2.97 billion), to expand its lineup of video-conferencing products.

Cisco will pay 153.50 kroner a share in cash, Lysaker, Norway-based Tandberg said today in a statement. That’s 11 per cent more than Tandberg’s closing price in Oslo trading yesterday. Tandberg is the world’s largest maker of videoconferencing equipment.

The purchase, Cisco’s first acquisition of a public company outside the US, accelerates its push in the video- conferencing market, where the company already offers different versions of its TelePresence system. TelePresence — which typically includes furniture, cameras, and giant screens — can transmit life-size images of up to six people. Some systems may cost $299,000 or more, depending on the configuration.

“This fits very well with Cisco,” said Michiel Plakman, who helps oversee the equivalent of $150 billion at Rotterdam- based Robeco NV, including Cisco and Tandberg shares. “They will immediately become the most important player in the market and aren’t paying a ridiculous premium, so this is positive.”

With Tandberg, Cisco gains less-expensive systems that appeal to smaller companies, Chief Executive Officer John Chambers said today in an interview. Tandberg, whose products range from room-sized systems to personal products, counts Ericsson AB and Bayer AG as customers. It’s developing systems for integrating video with other communications such as messaging.

“Our market is the entire collaboration market, and video is at the heart of that,” Chambers, 60, said from Norway. “Our products have almost zero overlap from a revenue perspective.” The collaboration market is a $34 billion industry, he said. Cisco has a “very small” part of the market, he said on a conference call today.

Videoconferencing sales at both companies advanced last year as customers, working to trim travel costs during the recession, added more gear. Cisco in August said TelePresence sales rose 97 per cent from the previous year, without giving revenue details.

Video, which Chambers previously has called “the killer app,” needs more bandwidth than voice and data, pushing service providers and consumers to buy more gear to accommodate the bigger loads. Putting more video on networks also benefits Cisco’s main business of selling routers and switches that direct traffic. Slowing demand in that business has resulted in three straight quarters of sales drops.