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.

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