Cisco is making an all-cash offer of $3 billion to acquire video communication vendor Tandberg in a deal that aims to rev up its video collaboration business.
The deal, expected to close in the first half of 2010, will help Cisco (NASDAQ: CSCO) expand its TelePresence video collaboration technology footprint, which targets customers ranging from small to large enterprises and includes video delivery architecture, services and hardware components.
According to Cisco CEO John Chambers, the size of the market opportunity that the combined Cisco-Tandberg group will be tackling is currently pegged at $34 billion.
“I’ve been in this business for two decades and there has never been an area that I think had the capability to transform everything — from standard of living to education to health care to business models — like collaboration and the power of the network as the platform for innovation,” Cisco CEO John Chamber said during a press conference today.
“What has always been missing is ease of use of getting systems to work together well,” he said. “What was really missing is the fact the vast majority of communications and interactions isn’t one-to-one and isn’t voice or data. It’s many-to-many and it’s with video. That’s what this combination is all about.”
In some ways, the current offering from Tandberg overlaps with Cisco’s technology, but that’s a good thing in Chambers’s view. He said that that Tandberg’s technology complements Cisco and will serve to make the pie bigger for all.
Still, Chambers added that a Tandberg salesperson had asked him during a company meeting this morning how they should focus their efforts since Cisco has been one of Tandberg’s biggest competitors.
Cisco’s CEO said he had been quick to note that no joint sales efforts can begin until the deal officially closes in 2010, but also said that the competitive sales efforts of Cisco and Tandberg had never been personal and that both groups have similar cultures.
Additionally, once the deal does close, Chambers said that they’ll have plenty of competitors to chase, including Microsoft and HP, among others.
Interoperability and interconnectedness
According to Chambers, a key part of why the deal will work is the fact that both Tandberg and Cisco support interoperability.
“Tandberg has been in this business for twenty years and they’ve learned a long time ago how you interface to the Microsoft, Sony and Polycoms of the world, which allows us to get the power of the number of nodes,” Chambers said.
Marthin De Beer, senior vice president of Cisco’s Emerging Technologies Group, will lead the new combined Cisco Tandberg TelePresence Technology Group, and he too sees the power of more nodes as being key to the deal.
“We really enable Metcalfe’s Law so that the more systems we can connect across the network as a platform the value of the system increases by the square of the number of endpoints,” De Beer said, in reference to the theory argued by Ethernet inventor Robert Metcalfe about the power of expanding networks.
The current economic recession and a potential upturn is one of the factor that contributed to the timing of the acquisition.
“We tend to be very aggressive during market downturns, but we wanted to see the market give reasonable indications of an upturn before we started to move,” Chambers said. “If we’re right, the odds are good that we’re coming out of this.
“We’ve seen the data on a global basis,” he added, and while it’s “too early to say how strong we come out of it … that’s the logical time to move.”
Chambers said Cisco would also continue to be very aggressive, especially since it has $35 billion in cash with which to make other acquisitions.