Regardless of Tandberg Resolution, Cisco’s M&A Reputation Dented

If Cisco thought it could acquire Tandberg with the $3-billion all-cash proposal it has on the table, the networking giant’s braintrust might want to think again.

To close the deal, Cisco needed 90 percent of Tandberg’s shares to be tendered at the offer price of 153.50 Norwegian crowns per share. Almost from the outset, just after the proposed takeover was announced, Cisco was fighting resistance from approximately 24 percent of Tandberg’s shareholders who wanted more money than Cisco offered.

Upset at having to deal with such intractability, Cisco decided to reach for sticks and vinegar as opposed to carrots and honey. Cisco spokespeople repeatedly said they felt the bid was fair, with some suggesting that Cisco might walk away from the deal rather than sweeten the original offer.

Cisco’s stance hardened further with a blog post from Ned Hooper, chief strategy officer and senior VP at Cisco. He not only asserted that the offer was fair, but he pointed out the risks as well as the rewards associated with Cisco’s proposed Tandberg acquisition.

He also mentioned that, while Cisco saw potential riches in video collaboration — a $34-billion opportunity, according to Cisco — most collaboration today was done with voice technologies. Tandberg doesn’t offer voice collaboration, but Polycom — Tandberg’s primary rival in videoconferencing systems — does. Hint, hint, wink, wink, and nudge, nudge.

So, did Hooper’s blunt words and implicit warnings have the desired effect? Did Tandberg’s dissident shareholders, who don’t appear to have a white-knight bidder waiting in the wings to top Cisco’s offer, fold their tents and reluctantly acquiesce to Cisco’s demands that they just take the proffered money and go away?

Not quite.

Reuters reported late yesterday that investment adviser OppenheimerFunds, on behalf of funds and accounts owning a 5.78 percent stake in Tandberg, said it will not agree to sell the shares it manages to Cisco at the current offer price.

Never one to cut off its nose to spite its face, OppenheimerFunds also said it remains open to improved offers from Cisco or from anybody else who wants to pay to play with Tandberg.

As a result of OppenheimerFunds’ declaration of intent, Tandberg shareholder opposition to the Cisco acquisition has grown. Investors owning as much as 30 percent of Tandberg’s shares are now telling Cisco to reach into its prodigious reserves of foreign cash to get this deal done at a higher price.

Endorsed wholeheartedly by Tandberg’s board of directors, the deal must be approved on or before November 9 by those possessing at least 90 percent of Tandberg’s shares. As it stands, with just four days on the calendar remaining, Cisco seems a long way from that goal.

It seemed unthinkable when Cisco announced its intention to acquire Tandberg at the beginning of October, but this deal could unravel completely.

Just after Cisco made its offer, I was mildly surprised that Cisco walked into a hornet’s nest of significant minority-shareholder dissent at Tandberg, but I felt the networking giant would soon manage a dignified, quiet resolution, perhaps boosting the offer marginally, albeit reluctantly. From Cisco’s perspective, such an outcome wouldn’t have been ideal — it sets a bad precedent, after all — but it would have been better than the dilemma it faces today.

Cisco has backed itself into a corner at Tandberg, and now its only options are backing down, backing away from the table, or considering an alternative transaction involving Polycom, a fit that would be less complementary than Tandberg.

How did it get to this point? How did Cisco misread the investor situation so badly at Tandberg? Did it rely too much on Tandberg’s board, not doing its own due diligence into the composition and constitution of critical shareholding blocs at the Norwegian company?

For a great many years, Cisco was an acquisition machine, conceiving and executing deals as fluidly and seamlessly as any company on the planet. Regardless of the eventual outcome, that’s not what happened at Tandberg.

Instead, something went wrong, practically from inception. What we must ask ourselves is whether this was an anomalous exception — resulting from Cisco’s first attempt to buy a large, public company based in Europe — or whether it’s a portent of more trouble ahead.

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