Uncertainty Clouds Cisco Tandberg Deal

Cisco Systems Inc. said that fewer than 10 percent of Tandberg’s shareholders have accepted its $3.1 billion tender offer to buy the Norwegian-based video conferencing maker.

The networking giant said that it held the rights to acquire some 10.4 million Tandberg shares, representing about 9.7 percent of the company’s shares and voting rights. The agreement requires sign off by holders of 90 percent of Tandberg’s shares.

A block of Tandberg shareholders representing some 30 percent of the company’s shares said publicly that they oppose the offer because they believe it is too low. Reuters reported that those opposing the bid include Oppenheimer Funds, which represents owners of about 6 percent of Tandberg’s shares.

Cisco has extended the offer period until November 18.

In an open letter to Cisco dated November 6, the investment firms Panta Capital and Scott & Associates AG complained that Cisco’s proposal undervalued Tandberg and suggested that the networking giant had erred in calculating the per share offer at a 38 percent premium.

“Given your conviction that video conferencing will become the core of the USD 34 billion dollar collaboration market, we believe the NOK 153.5 per share offer undervalues the significant growth profile of Tandberg, the market leader of the video conferencing infrastructure market,” wrote Peter Germonpre of Panta Capital and Dan Scott of Scott & Associates.

The authors argued that since Cisco’s offer Tandberg had outperformed analysts’ estimates. During the period ended September 30, Tandberg posted an 11.6 percent jump in revenue but a 34 percent decline in year-over-year per share earnings.

“We believe that a higher, more appropriate price for the acquisition of Tandberg, taking into account its growth profile and the substantial scope for sales and cost synergies, is not in conflict with Cisco’s respect of the principles of prudence and financial fairness,” the letter said.

Cisco believes offer is fair

Last week, Cisco declined to change the terms of its offer. It subsequently has not said if it will alter the terms of the transaction to attract the necessary percentage of Tandberg shareholders.

“We feel that it is a very sound offer, a very fair offer,” said Ned Hooper, Cisco senior vice president for corporate development and consumer groups, at the company’s first quarter conference call.

Cisco said yesterday that after the extended period closes it will determine if the 90 percent condition has been met and, if not, decide whether to withdraw the offer.

John Chambers, Cisco chief executive, hinted that Cisco could turn its back on the deal.

“I believe we will get this transaction closed,” he said, at the quarterly conference call. “But we have walked away from a couple of deals this year where we could not get the right pricing,” he said.

Acquiring Tandberg fills a strategic slot in Cisco’s video conferencing portfolio at the mid-range and entry level of the market. Tandberg’s smaller, less expensive video conferencing products afford Cisco immediate access to mid-sized accounts, a segment the vendor has been unable to successfully approach with its high-end, pricey TelePresence systems.

Cisco estimates the global market for collaboration and video conferencing equipment and services at about $34 billion.