Daily Archives: December 3, 2009

Cisco Gets 89 Percent of Tandberg Shares, Waives 90-Percent Condition

Those of you of a certain age will remember the immortal words of Maxwell Smart, played by Don Adams, in the sitcom television series “Get Smart.” When Smart or one of the other characters came tantalizingly close to a target or a goal, he would say: “Missed it by that much.”

Cisco’s CEO John Chambers and his lieutenants must have been doing their best impressions of Maxwell Smart today as they watched their percentage of tendered Tandberg shares inch toward the 90-percent threshold that had been set as a condition for Cisco’s $3.4-billion acquisition of the Norway-based videoconferencing-systems vendor.

As of the deadline today, Cisco had 89 percent of Tandberg shares in its pocket, not quite enough to close the deal. Still, Cisco got close enough to justify a waiver of the 90-percent condition. From a Cisco press release posted to the CNNMoney.com website:

In the voluntary public cash offer to acquire all outstanding shares in TANDBERG, Cisco (NASDAQ: CSCO) announces that following the expiration of the offer period at 5:30 pm CET on December 3, 2009, Cisco controls approximately 89 percent of the outstanding shares in TANDBERG (OSLO: TAA).

The received acceptances represent a lower acceptance ratio than the 90 percent condition to the offer set out in Section 1.7 in the offer document dated October 7, 2009. However, Cisco has decided to waive this 90 percent condition.

There may be adjustments to the preliminary result due to possible corrections and changes following registration with the Verdipapirsentralen (VPS). The final result will be published as soon as it is available.

Cisco intends to complete the voluntary public cash offer subject to the satisfaction or waiver of the remaining conditions to the offer as set forth in the offer document, Section 1.7, as soon as possible. Assuming completion of the offer, Cisco will in relation to the remaining shares in TANDBERG proceed as required under chapter 6 of the Norwegian Securities Trading Act.

The process of acquiring Tandberg has not gone well for Cisco. On the whole, Cisco must be embarrassed by the episode. It wasn’t an unmitigated disaster, though, and Cisco now has a chance to move ahead with its Tandberg integration and with its plans for dominance of video-based collaboration and communication.

Cisco has traveled a bumpy, potholed road on its quest to close the Tandberg acquisition. The tactical missteps in the botched execution of the deal have obscured the reality that Cisco’s strategic reasons for pursuing Tandberg were exceptionally sound.

Cisco now has an opportunity to put this saga behind it. Lessons presumably have been learned.

Dell’Oro Forecasts Growth in Chinese Wireless-Infrastructure Spending in 2010

Primarily as a result of a decrease in 3G deployments in China, the worldwide market for wireless-network infrastructure declined 10 percent in the third quarter on a year-over-year basis, according to market researcher Dell’Oro.

Said Dell’Oro in a statement quoted by Reuters:

“While 3G spending in China is expected to stay depressed for the remainder of this year … heavy spending by China Unicom and China Telecom is expected to resume in 2010, and will be a prime contributor to both the WCDMA and CDMA markets.”

In this year’s third quarter, the market was worth $9 billion in revenue. As reported by FierceWireless, Ericsson’s share of the market remained steady, but Huawei gained share on Nokia Siemens Networks. Recently, Alcatel-Lucent won contracts worth approximately $1.7 billion to provide network upgrades, infrastructure, and services for China Mobile and China Telecom.

As in many other industries, telecommunications-equipment vendors seeking revenue growth will have to go to China to find it.

Ciena’s Tweaked Terms Deliver Victory Over Desperate NSN for Nortel’s MEN Assets

On the surface, it appears that the bankruptcy judge presiding over the kerfuffle between Nokia Siemens Networks (NSN) and Ciena for the privilege of owning Nortel’s Metropolitan Networks (MEN) assets made his decision purely on legal and procedural grounds.

Then again, maybe not.

As reported by Bloomberg, U.S. Bankruptcy Judge Kevin Gross who is overseeing the liquidation of Nortel’s U.S. assets, ruled yesterday that NSN’s $810 million after-the-buzzer offer should be rejected.

Ciena, which formally had submitted the top auction bid of $759 million in cash and convertible notes, argued successfully that it already had begun work on combining the two companies subsequent to the November 22 auction.

Nortel had sided with Ciena in the post-auction fracas, asserting that allowing a bid after the conclusion of the auction would disrupt the sale of the company’s remaining assets – not that there are many in the corporate garage left to sell.

Even though the $810-million bid from NSN was too late, it wasn’t too little. At face value, and even taking into account a $21-million compensatory breakup fee Nortel would have been obligated to fork over to Ciena, the NSN bid appeared to represent a better deal for Nortel creditors.

What’s interesting is that the Ciena offer appears to have been tweaked yesterday in a hallway outside the courtroom. Quoting from a Reuters article:

That set up Wednesday’s fight in court, with Nokia Siemens and some creditors arguing the auction should be reopened, in part because Ciena’s convertible securities were overvalued.

After roughly seven hours of argument, testimony and cross-examination, Nortel’s attorney said his team had a reached a deal in the hallway outside the court that would lead to the withdrawal of the last major objection.

Withdrawal of the objections made that a near-certainty later on Wednesday.

U.S. bankruptcy court in Delaware and a Canadian court cleared the deal after simultaneous hearings, Ciena and Nortel said in separate statements.

To clear the last objection, Ciena agreed to change the pricing on its convertible securities under certain conditions.

“This increases the value to the estate,” said Jennifer Feldsher, an attorney with Bracewell & Giuliani, which was representing creditor Matlinpatterson Global Investors. “We withdraw our objection.”

Ciena’s pricing change to the convertible securities included in its bid appeared to represent a modification of its formal offer. The move triggered the ire of an attorney representing Nokia Siemens Networks. Quoting again from the Reuters report:

Nokia Siemens’ attorney, Gregg Galardi, was critical of the deal saying it appeared to allow Ciena to change its bid and Nokia Siemens should be allowed to as well.

“It sounds like there is a material change to the bid,” Galardi of Skadden, Arps, Slate, Meagher & Flom said. “If that doesn’t reopen the auction, I don’t know what does. We stand by that $810 million bid.”

Was it a material change to the bid? If so, would it have been grounds to reopen the auction?

Don’t ask me. Those are legal questions, and I have difficulty distinguishing torts from tarts. However, I do welcome the learned opinions of the razor-sharp legal minds that frequent this blog occasionally.

That debate might be fun to have, but it would be entirely academic. NSN has conceded defeat, and Ciena is getting Nortel’s MEN business, even if the stock market and many of its shareholders wish otherwise.

As for NSN, the joint venture between Nokia and Siemens seems as confused and conflicted as ever, even if its new CEO is talking a big game about his plans for market-share gains and world domination.

Putting aside yesterday’s courthouse dustup, how could NSN fail to put its best collective foot forward during the actual auction process? How badly disorganized does the company have to be if it can’t be ready with its auction strategy before and during, you know, the actual auction?

I wrote before that the timing didn’t favor an NSN bid for Nortel’s MEN assets. Even though NSN scrambled in conjunction with private-equity concern One Equity Partners, which manages $8 billion in assets for JPMorgan Chase & Co., it is now evident that this was a last-minute, slapdash effort. It makes one wonder about the strategic coherence behind everything else that NSN is cobbling together.

Meanwhile, we read that Siemens today took an impairment charge of €1.634 billion for its continued involvement with NSN. Considering that Siemens AG has reduced its direct exposure to information technology, and that it has said IT is “not a great place to be,” one might question how long it will continue to take charges on a joint venture that seems strategically misaligned with its own big-picture objectives.

My supposition is that the recent emphasis on expanding and extending NSN into cleantech and renewable-energy solutions might have been, at least partly, a concession to Siemens, which has a large energy-related business and considerable expertise in that area. At its core, though, NSN remains a telecommunications concern, and that’s not where Siemens sees its future.

Seemingly flailing and swaggering at the same time, NSN lurches unsteadily into an uncertain future.

Clock Runs Out Today on Cisco’s Tandberg Offer

Later today, we’ll know whether Tandberg shareholders were willing to tender 90 percent of the company’s stock to Cisco, pursuant to the terms and conditions of the networking giant’s $3.4-billion acquisition bid for the Norway-based videoconferencing-systems vendor.

The deadline for the offer, which sees Cisco paying 170 Norwegian crowns for each share, is 5:30pm Central European Time, which translates as 11:30am Eastern and 8:30am Pacific.

If Cisco doesn’t quite reach the 90-percent threshold, what it does next will be closely watched. It could walk away from the deal, but most observers think the company will waive the 90-percent requirement and attempt to negotiate, presumably from a position of strength, with the diminished numbers of naysaying shareholders.

The actual percentage of shares tendered is likely to be very close to the required target. Without a doubt, much arm twisting, cajoling, campaigning, persuading, and remonstrating have been occurring behind the scenes.