Network equipment maker Cisco Systems struck a deal to buy Norwegian videoconferencing company Tandberg for $3 billion in a bid to dominate the high-growing market of corporate video communications.

Analysts said the move ratchets up competition, and possibly more deals, among video conferencing providers like Hewlett-Packard and Polycom, and underscores Cisco's focus on video conferencing which enables workers everywhere to interact with colleagues and customers online.

The most exciting area in technology today is around collaboration and video architecture, Cisco Chief Executive John Chambers said on a conference call.

The acquisition helps Cisco fill the gap between its high-end TelePresence video meeting service for executives and its WebEx online meeting software used by millions of office workers, as Tandberg, a market leader in video conferencing, offers a variety of desktop and other mid-range products.

Tandberg's videoconferencing units sell for around $7,500 each, while Cisco's TelePresence systems cost about $250,000.

Jefferies analyst Bill Choi said the move would give the combined company close to 50 percent market share, and help speed up growth of its video business.

We always expected Cisco to move downstream and this acquisition accelerates its time-to-market by at least 18 to 24 months, he said.

Cisco also sees video conferencing driving sales of routers and switches, which help direct Internet traffic and are Cisco's traditional bread and butter. Online, high-resolution video requires ample bandwidth as well as advanced network equipment to ensure smooth connections.

They realize that if they don't find new purposes for the network they're going to get commoditized, said Gartner analyst Ken Dulaney.

Tandberg said its board has recommended the Cisco offer to its shareholders and Chief Executive Fredrik Halvorsen said major shareholders had voiced support for the cash offer of 153.50 Norwegian crowns ($26.49) a share. Halvorsen will continue to lead the unit if the acquisition goes through.


Shares of Tandberg, which had almost doubled in value this year by persistent takeover speculation, closed 11 percent higher at the offer price of 153.5 crowns on Thursday, having traded at up to 156 crowns earlier in the day.

Cisco's shares were down 39 cents or 1.66 percent at $23.15 in afternoon trading.

Video conferencing has taken time to gain traction, but higher Internet speeds and pressure to cut corporate travel have helped boost its adoption over the past few years. Cisco last quarter said revenue from TelePresence nearly doubled from a year earlier, even as router revenue fell 27 percent.

Cisco estimates the total value of collaboration tools, including everything from videoconferencing to conference calls to Google Apps, to be worth about $34 billion.

Most analysts said a rival bid was not expected, although they did not rule it out. Potential rival suitors include HP, which is also active in Web collaboration. The market has also linked telecoms gear maker Ericsson with Tandberg.

DnB NOR Markets named in a report on Thursday Juniper, IBM, Sony and Siemens.

The latest offer values Tandberg at about 23 times 2010 earnings, analysts say, slightly above U.S. rival Polycom's multiple of 21.7.

Jefferies' Choi said the deal could put pressure on Polycom, but Polycom CEO Robert Hagerty said it opens up opportunities for it to work more closely with other vendors.


The acquisition would be Cisco's biggest deal since the world's top maker of Internet routers and switches bought WebEx for $3.2 billion in 2007.

Chambers said Cisco, which had a cash pile of $35 billion as of July 25, would step up the pace.

You're going to see us more aggressive over the next 12 months than you have seen us as a company, he said. We will be very aggressive with internal start-ups, partnering ... and also in acquisitions.

Technology merger activity is picking up as the market improves. PC maker Dell recently bought IT services firm Perot Systems, and software maker Oracle bought hardware firm Sun.

Cisco said it hopes to close the deal in the first half of 2010, subject to regulatory approval. Most anti-trust lawyers said the acquisition would give the company a broad portfolio

that rivals would struggle to match and regulators could take a close look at the deal, but it would likely get through.

(See also DEALTALK-Enterprise IT deals to drive tech M&A

($1=5.794 Norwegian crowns)

(Additional reporting by and Aasa Christine Stoltz, Joachim Dagenborg, Tejre Solsvik and Wojciech Moskwa in Oslo, Quentin Webb in London, Foo Yunchee in Brussels, Diane Bartz in Washington, and S. John Tilak in Bangalore; Editing by Greg Mahlich and Matthew Lewis)