Cisco Takes Harder LIne with Dissident Tandberg Shareholders

At this point, only those within Cisco’s inner sanctum know whether the company will stick to its guns and refuse to negotiate with dissident Tandberg shareholders who stand in the way of the networking giant’s $3-billion acquisition of the Norway-based videoconferencing-systems vendor.

The latest salvo in the gamesmanship standoff was fired in a blog post from Ned Hooper, chief strategy officer and senior vice president of the consumer business at Cisco. Seeming a bit peeved at “significant speculation and rumor in the media” regarding Cisco’s pending offer to acquire Tandberg, Hooper seized the moment to stress that there are risks, as well as rewards, associated with a Cisco acquisition of Tandberg.

Hooper makes his case by first asserting that Cisco made a fair offer for Tandberg. Then, he cites the risks associated with the deal, including integration of a large European public company — unprecedented for Cisco — as well as the “overall integration complexity associated with engineering and sales spread across both Norway and the UK.” Another risk he mentions are onerous currency-exchange rates.

He then puts these cards on the table:

The bottom line is that Cisco will always act with fiscal prudence. The collaboration market is a $34 billion dollar opportunity where voice is currently the largest application. We believe that video will become the core of the collaboration market, but, it will require substantial innovation and investment to drive this market transition. We’ve already seen increased competition for the traditional video players in the market, as broad based collaboration vendors increasingly focus on video. For all these reasons we believe the time is right for Cisco and Tandberg to come together to help accelerate global adoption of collaboration technology through interoperable, standards-based products. However, no acquisition should be pursued or completed if it runs counter to the broader principles of prudence and financial fairness.

Given all the speculative “noise” last week, I wanted to take the time to reiterate these points because it is important to me, and to Cisco, that all of our stakeholders understand our position as we near the end of the offer period.

Did you notice the none-too-subtle intimation Hooper dropped into his statement? It’s contained in one word: voice. Although he includes the word within the context of pointing out Cisco believes video will become the core of a collaboration market that represents a $34-billion opportunity, he says “voice is currently the largest application.”

Well — hey, now! — which vendor does video- and voice-based collaboration and is one of the leaders in the videoconferencing-systems market? Hint: It isn’t Tandberg. It’s Polycom.

Is Cisco willing to drop Tandberg like a bag of rotting spuds and run toward Polycom? Probably not, but one never knows — which is why Hooper interjected the voice dimension into his online epistle to Tandberg’s holdout shareholders. Whether one wants to deem it a veiled threat or a blunt statement of fact, Hooper has implicitly suggested a new alternative for Cisco to pursue if Tandberg’s refusenik shareholders continue to block the deal.

Just to recap, the rebellious shareholders own about 24 percent of Tandberg’s stock. To close the deal, Cisco requires that 90 percent of Tandberg’s shares be tendered at the proposed per-share offer price on our before November 9.

To put this in perspective, some of the disgruntled Tandberg shareholders have said a slightly higher Cisco bid — perhaps adding $300 million or $400 million to the current offer — will be enough to win their support.

Many wonder why Cisco doesn’t just quietly sweeten the offer a bit to get the deal done. It now seems to be about precedent, specifically the precedent of Cisco getting squeezed by recalcitrant shareholders in a company it seeks to acquire. Cisco is probably saying to itself: “If we do this for Tandberg, we’ll have to do it for everybody.” It is a dangerous precedent, and one can understand why CIsco would play hardball.

What happens now? Well, Cisco’s stance is clear. It has taken a hardline negotiating position — which is to say it isn’t negotiating at all — and it’s up to Tandberg’s dissident shareholders to respond.

Cisco could simply boost its offer modestly to close this deal, and that still might be what happens before this saga is done, but it apparently has taken stock of the situation and determined that it can do without that sort of precedent. Cisco also seems to be confident that it can intimidate the Tandberg mutineers into submission.

Cisco has signaled that it has options, whereas Tandberg’s options are less obvious. Cisco, at least theoretically, could drop its Tandberg offer and make a pitch for Polycom, while Tandberg doesn’t have a white-knight acquirer waiting in the wings. If Cisco’s drops its bid, Tandberg’s only recourse would be to continue as the independent company it is today.

Will Tandberg’s dissident shareholders stand firm in their demand for a sweetened deal? If they do, they had better be sure Cisco is bluffing.

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