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Cisco Acquires Chinese Set-Top Box Vendor

Cisco Acquires Chinese Set-Top Box Vendor
Cisco today continued its acquisition spree with yet another purchase designed to augment its core networking business. This time, the target is the set-top box business of China-based DVN (Holdings) Limited.

The purchase offer will see Cisco (NASDAQ: CSCO) paying as much as $44.5 million for unit, with $17.5 million in cash and up to $27 million paid out over the next four years based on sales performance milestones.

Cisco expects the deal to close in the first half of 2010.

With DVN, Cisco is expanding its set-top digital video portfolio and is targeting the Chinese cable market, which it said is the largest in the world with 160 million subscribers today and growing.

"The set-top box business of DVN provides a strong product offering, market-leading R&D organization, and established sales force serving over 70 cable operators across China, which positions Cisco to capture a share of the expected transition of over 80 million households to digital cable over the next four years," Ken Klaer, vice president and general manager for Cisco's International Cable business unit, said in an e-mail to InternetNews.com. "DVN's set-top box business will give Cisco a platform to introduce advanced set-top and other cable- and media-enabled home solutions into the China market as it matures."

Cisco is no stranger to the set-top box market. In 2005, the networking giant acquired set-top box vendor Scientific Atlanta for $6.9 billion. Some of that Scientific Atlanta expertise will now be brought to bear in China.

Klaer said the DVN set-top box business will initially roll up under the Cisco's International Subscriber unit, which he runs. He added that local management will be the responsibility of Bill Katherman, who ran Scientific-Atlanta's business in Asia for over 10 years while based out of Shanghai.

In the near term, the plan is for the DVN unit to continue to operate as a standalone business. According to Klaer, the transition from the DVN to the Cisco brand will occur as soon as practical, after a short transition period.

The approach aims to help Cisco accelerate its time to market in China as well as to serve as a base from which to expand in other geographies.

"Cisco understands the need for localization of End-to-End video solutions, and the acquisition of the set-top business of DVN fits this strategy," Klaer said. "Local R&D solutions provide for a faster and more tailored response to market needs. Our experience in China will provide valuable lessons for addressing other fast growing markets such as India and Brazil."

Cisco's acquisition spree

The DVN set-top business acquisition is the latest in a busy string of recent purchases by Cisco. In October, the company announced three separate deals to acquire companies in the video conferencing, wireless and security space.

The flurry of activity saw Cisco on Oct. 1 announce its intention to purchase video conferencing vendor Tandberg for $3 billion. Less than two weeks later, Cisco agreed to purchase wireless vendor Starent for $2.9 billion. And just last week, Cisco said it planned to acquire Software-as-a-Service (SaaS) security vendor ScanSafe for $183 million.

Not all the acquisitions appear to be moving smoothly, however, with the Tandberg deal having since met with some shareholder resistance.

Cisco Chief Strategy Officer Ned Hooper is now fighting back, stating in a blog post that the Cisco offer is fair for Tandberg shareholders. Hooper added that Cisco's offer price is a 38.3 percent premium over Tandberg's closing price on July 15, the day prior to early reports of a deal between the two companies.

"Is a 38.3 percent premium fair for Tandberg shareholders? Absolutely." Hooper said in his post. "Does it lock in a superior return for Tandberg shareholders and protect them from future market risk? Yes. Does it also fairly reflect risks borne exclusively by Cisco shareholders? Yes."