Logitech Buys LifeSize in Blockbuster $405M Deal

In a surprising development in the videoconferencing market, consumer PC peripherals maker Logitech announced it’s intent to buy LifeSize for $405 million. The all-cash deal gives LifeSize a much bigger war chest in its battle against Cisco (NASDAQ: CSCO) and others in the videoconferencing market. The deal is expected to close next month.

Logitech’s entry to the realm of corporate videoconferencing is a surprise since it is primarily a consumer hardware vendor. However, the company is a leading provider of Webcams that are used in many business environments.

“Our two companies share a vision for the role of video in business and professional communication, believing that anywhere there is voice there should be video,” read a letter posted by LifeSize and Logitech addressed to LifeSize customers and partners.

The letter continued: “That means offering a life-like, HD-video communication experience that is as seamless and mainstream as a telephone call – not just in the board room for a select few, but in any meeting room in the enterprise, as well as at one’s office desk or while telecommuting from home.”

The letter was signed by the CEOs of both companies, Craig Malloy of LifeSize and Gerald Quindlen of Logitech.

Both companies plans to provide further details during a press conference on Wednesday. Logitech is based in the Silicon Valley while LifeSize is in Austin, Texas.

The news comes at a time of increased interest in videoconference and collaboration tools, particularly as companies seek to save money on airfare and travel expenses. Cisco is the midst of a Collaboration Summit event this week and yesterday announced a raft of products related to video and collaboration, including new IP phones and an enterprise social networking product. Cisco CEO John Chambers called the overall collaboration space, which he said will be driven largely by video, a $34 billion dollar opportunity.

For its part, LifeSize has consistently positioned itself as a lower-cost alternative to Cisco’s large-screen Telepresence systems, which cost more than $100,000. Cisco is in the midst of trying to complete a $3 billion dollar deal to acquire Tandberg, which would give Cisco a much broader range of video offerings.

However, the deal is threatened by a minority of Tandberg shareholders who don’t think Cisco is paying enough.

Analyst Tim Bajarin said the LifeSize deal is consistent with Logitech’s vision of trying to make video easier. “Their cameras and Webcams are good, but software has been a barrier to making the whole experience seamless. In that context this deal makes a lot of sense,” Bajarin, president of Creative Strategies, told InternetNews.com.

Bajarin notes the consumer market for video telephony hasn’t taken off and it makes sense for Logitech to follow the money to the corporate/business side, where most of the action is. “Why not enhance and expand your market position?” he said.

Analyst Maribel Lopez of Lopez Research said LifeSize doesn’t offer as complete a solution as Cisco at the high end, “but it’s enough for companies that are interested in video and willing to accept ‘good enough’ for the lower prices LifeSize offers.”

Better pricing or not, battling behemoths like Cisco requires considerable resources and Logitech’s funding and resources stands to help LifeSize better compete.

“With Logitech’s backing, LifeSize will be able to scale more effectively to deliver technology solutions to more customers and partners around the world. And by closely collaborating on innovation, we believe that we can accelerate the realization of our vision,” the CEOs said in their letter.

LifeSize said it expects revenue in 2009 to be about $90 million. The company has 300 employees worldwide and 9,000 customers in more than 80 countries.

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