Cisco’s Brinkmanship with Tandberg Shareholders

Cisco Systems seems to be indulging in some brinkmanship in its showdown with dissident Tandberg shareholders obstructing the networking giant’s acquisition of the Norway-based videoconferencing-systems vendor.

A Reuters report, quoting a “source familiar with the matter,” indicates that Cisco is reviewing its options in relation to the Tandberg transaction. Those options include withdrawing or raising its $3-billion bid.

Hamlet was set in Denmark, not Norway, but that historical footnote won’t prevent Cisco from doing some procrastination of its own. According to the Reuters source — who likely is from within the Cisco camp — Cisco probably will not decide whether it wishes to buy or not to buy before the tender offer for Tandberg’s shares expires on November 9.

Investors holding approximately 24 percent of Tandberg’s shares rejected the Cisco offer, even though Tandberg’s board of directors recommended that shareholders approve the deal. To consummate the transaction, Cisco must gain the acceptance of shareholders possessing 90 percent of Tandberg’s stock.

Cisco actually has multiple options. Rather than increasing the value of the offer or withdrawing it altogether, Cisco could extend the original offer. Given that no white-knight buyer has appeared on the horizon, as I mentioned previously, Tandberg’s recalcitrant shareholders must consider their next move carefully.

For its part, Cisco is saying that it has made a fair offer. It has made noises about rescinding the takeover bid, but the Reuters source indicated that Cisco “is far from deciding that it will withdraw its bid, although it is being strongly considered by top executives.”

Said one of the restive Tandberg shareholders:

“It would seem odd to me that (Cisco) would walk away for a few hundred million dollars … I think for 170 NOK they will probably get it through.”

Maybe that’s all Cisco needed to hear.

Cisco clearly wants to fill out its top-heavy telepresence offerings with Tandberg’s broader, market-leading videoconferencing product portfolio. In theory, CIsco could spurn Tandberg and consider Polycom as an alternative, but the fit would not be as good, with Cisco having to pick up audioconferencing products it probably wouldn’t value.

Cisco probably isn’t elated about having to deal with a Tandberg shareholder uprising. That said, it will not behave irrationally.

If it makes a sweetened bid, Cisco will make sure it’s a modest one. If that Tandberg shareholder’s sentiments are representative of 14 percent of holdout shares, then Cisco would have to boost its offer by a little more than $300 million to close the deal.

Cisco will make the Tandberg rebels sweat — it doesn’t want to go through this sort of ordeal every time it attempts to buy a company — but the deal will get done.


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