Daily Archives: November 6, 2009

Tandberg Shareholder Dissent Grows as Cisco Ponders Options

As another group of Tandberg shareholders steps forward to demand a sweetened bid from Cisco, the networking giant will have a difficult decision to make before Monday, when the deadline expires on its current offer to acquire the Norway-based videoconferencing-systems vendor for $3 billion.

To close the deal, Cisco needs 90 percent of Tandberg’s outstanding shares to be tendered at the offer price by November 9. That clearly is not going to happen, not with dissident shareholders in possession of more than 30 percent of Tandberg’s stock.

The latest faction to express dissatisfaction with Cisco’s offer is Panta Capital, which represents owners of less than 1 percent of Tandberg shares. Although it officially manages only a modest proportion of Tandberg shares, Panta contends that its reasons for objecting to the Cisco offer are shared by others who oppose the deal.

In an open letter to Cisco, addressed politely to Mr. Chambers and Mr. Hooper, Panta makes its case, which essentially is that Tandberg is worth more than Cisco has offered and that Cisco ought to give greater consideration to Tandberg’s growth profile and synergies.

It’s irrelevant as to whether we agree or disagree with the holdout Tandberg shareholders. The fact is, there are enough of them to represent a formidable obstacle to Cisco’s aspiration to own Tandberg. Cisco can argue all it wants that it has made a fair offer. In the end, Cisco’s remonstrations will fall on deaf ears, or at least on a sufficient number of deaf ears to render the entire debate pointless.

Its powers of persuasion having failed it, Cisco now must decide what it will do about the significant dilemma it confronts.

Reuters published a story earlier today that unfurled some potential scenarios. Cisco could, for example, extend the deadline for the offer at the current price. That seems a road to nowhere — and I’m not talking about the Fjords.

Another alternative is a raised bid. Cisco’s original bid for Tandberg was at 153.5 Norwegian crowns per share. Panta and others believe a minimum bid of approximately 170 crowns could seal the deal. Many analysts think Cisco will relent and sweeten its offer. I personally think it’s the best of several disagreeable options.

Cisco could walk away from the deal. I’m not sure how seriously Cisco is considering this option, but CEO John Chambers says Cisco has walked away from deals before and will do so again. Still, Cisco put a lot of stock (pardon the pun) in Tandberg’s videoconferencing potential when the acquisition was announced earlier this month, and it still seems unlikely that Cisco would kick it into touch, even though winning the prize will require setting an unappetizing precedent with a slightly higher bid.

One other scenario Reuters mentions involves Cisco waiving some conditions of the deal, particularly the requirement that 90 percent of Tandberg shareholders must tender their shares. In this scenario, Cisco initially would accept a smaller stake in the company and increase its holdings over time. This sort of arrangement would be inherently complicated, however, introducing more ambiguity and uncertainty than Cisco or Tandberg would want.

Reuters mentions the possibility of a rival bid surfacing for Tandberg. While anything is possible — heck, the Cleveland Browns won an NFL game this season — no white-knight bidder has emerged from the shadows. I don’t think one will materialize.

Although Reuters didn’t cite it as a scenario, Cisco could decide to pursue Polycom instead of Tandberg for its low-end telepresence and videoconferencing-systems needs. It’s possible, but not probable. Tandberg is a better overall fit.

The problem with the Tandberg deal wasn’t so much its conception as its execution. That’s still true.

Reviewing the Skype Deal

If the battle for Skype were a television series, it would have been equal parts soap opera and suspense thriller. It nearly segued into courtroom drama, but it wouldn’t have been a good one, likely way too one-sided for engrossing fare.

In the end, it was the specter of a courtroom rout that got the principals to the table to hammer out a settlement that leaves a few people happy, a few people content, and a few people disconsolate. There were winners, losers, and those who fall somewhere between those unambiguous extremes.

I think Om Malik has done an excellent job categorizing how the various players fared. His blunt assessment is keenly accurate, cutting through the cant and dishonest spin of those who would try to persuade us that we can trust neither our own lying eyes nor our critical faculties.

As far as the official breakdown, eBay finally gets to sell majority ownership of Skype to a consortium of investors, though the composition of those investors — and the overall percentage of the company they’ll take off eBay’s hands — has changed.

The key paragraph, excerpted from the press release announcing the settlement, is this one:

“As part of the settlement agreement, Joltid and Skype founders Niklas Zennström and Janus Friis will join the investor group, contributing Joltid software and making a significant capital investment in exchange for a 14 percent stake in Skype. As a result, Silver Lake and other investors including Andreessen Horowitz and the Canada Pension Plan Investment Board (CPPIB), will together hold 56 percent of Skype and eBay will retain 30 percent. As previously announced, eBay will receive approximately $1.9 billion in cash upon the completion of the sale and a note from the buyer in the principal amount of $125 million. The deal, which values Skype at $2.75 billion and is not subject to a financing condition, is expected to close in the fourth quarter of 2009.”

In the original ill-fated arrangement, announced September 1, eBay sought to sell 65 percent of Skype to a consortium of investors that was led by Silver Lake. That consortium included Index Ventures but excluded Skype’s founders, Zennstrom and Friis, who — by the time this story runs its course — will have been both sellers and buyers of Skype in separate transactions with eBay.

Like the doomed proposal that preceded it, today’s announced agreement values Skype at about $2.75 billion.

Index Ventures and Mike Volpi, a partner in that firm, are not part of the deal. Index would like us to believe that this arrangement occurred entirely of its own volition, but the evidence suggests otherwise. Here is what Danny Rimer, a partner at Index Ventures, had to say about the Skype settlement:

“We are pleased that Skype will now be able to put litigation behind it, and we wish Josh Silverman, his team and the Skype investors well in continuing to grow a great business. Although Skype has the potential to be a great investment, the deal terms changed for Index such that it no longer matches our investment criteria and thus we have decided not to participate in the transaction.”

Om Malik contends rightly that this is . . . er, poppycock.

I don’t know whether Index could have said anything to take the sting out of the loss it sustained, on multiple fronts, in this whole Skype imbroglio. Nonetheless, the quote Rimer provides is embarrassing and ungracious. There are times when it’s best to say nothing, and this qualified as one of them.

It’s all over but the shouting now. With 23 directors, Skype might want to soundproof the boardroom.

Critiquing RIM Takeover Rumors

As Research In Motion’s share price gradually slides, rumors have begun to percolate about the company becoming an acquisition target.

In a piece over at the Deal.com, Microsoft and HP are mentioned as potential RIM acquirers, but I’m not seeing it.

An acquisition of RIM would be difficult for Microsoft to integrate, technologically and organizationally. RIM is a big company, with most of its leadership and engineering in Ontario, several time zones and thousands of miles removed from Redmond. Big, cross-continent mergers invariably are problematic — remember HP-Apollo and SynOptics-Wellfleet, anyone? — and their degree of difficulty and risk is commensurate with the size of the deal.

Another major complication is Windows Mobile. The problem there is that Microsoft still entertains aspirations of licensing its mobile operating system to as any handset OEM willing to adopt it.

For Microsoft to get to the point at which it would consider acquiring RIM, it first would have to conclude that it had no future as a licensee of Windows Mobile to third-party handset vendors. That day might be coming, but it hasn’t arrived yet. Microsoft just isn’t prepared to cede the third-party handset market to Google’s Android, though it increasingly appears that Microsoft’s search nemesis also will eat its lunch in the smartphone space.

In the case of HP, RIM would be an awfully big meal for Mark Hurd and his executive team to digest. Even presuming that HP might have the interest — and I’m not sure that it does — the size of the deal seems prohibitive, especially considering HP’s other priorities. Among those other priorities are core data-center switching, security software, and virtualization technologies. As HP looks to wrap its arms around the converged data center, its plate is decidedly full.

Once upon a time, I thought Nokia might take a serious run at RIM, but that window of opportunity slammed shut a few years back. Perhaps it’s better than Nokia didn’t acquire RIM. It isn’t as if Nokia has excelled at M&A, even when the deals have been relatively small.

Cisco is the only other player that has plausible means, motive, and opportunity to acquire RIM. If Cisco is serious about pursuing the video-communications and -collaboration market, it might consider how it can transform its Flip mobile video camera into a video-centric smartphone. It could pull off that technical metamorphosis without RIM, of course, but RIM would give it added credibility with enterprise IT buyers and wireless operators. But Cisco would be paying a high price for those benefits, and I don’t think it would be inclined to make the move.

Besides, Cisco has never acquired a company with a market valuation north of $30 billion. As the battle for the hearts and minds of shareholders at Tandberg demonstrates, Cisco now struggles with deals a fraction of that size. If Cisco decides to enter the smartphone space, it probably will do so without RIM as a corporate adjunct.

In summary, then, RIM’s shares might be sliding, but they’d have to slump a lot more before the company would be considered realistic acquisition prey.