Cisco Systems has reached a $5 billion deal to buy NDS, which makes set-top box software for cable and satellite TV companies, a move the network equipment maker said would accelerate its expansion into the video communications market.

NDS technology, which is used by BSkyB and Sky Italia in Europe, is expected to complement Cisco's Videoscape video delivery system. In North America, the company's customers include Cablevision Systems Corp, Comcast Corp, and Rogers Communications Inc.

NDS, which had filed for a public listing in December, is 51 percent owned by private equity fund Permira and 49 percent by News Corp.

Cisco, whose bread-and-butter business is routers and switches that manage Internet traffic, is keen to find new networking functions. The company is betting heavily on video, which Chief Executive Officer John Chambers likes to call the new voice and which is one of its five growth pillars.

This is the right deal to do right now, Chambers said on a call with analysts. He added that there were more opportunities for acquisitions, but did not elaborate.

The deal, announced on Thursday, is one of Cisco's biggest purchases. The company said it would pay about $5 billion, including the assumption of debt and retention-based incentives, to acquire all of NDS.

NDS has less than $1 billion in total liabilities, Chambers said.

Cisco's other recent large acquisitions include Norway videoconferencing company Tandberg for $3.3 billion in 2009, online video platform WebEx for $2.9 billion in 2007 and digital cable set-top box unit Scientific Atlanta for $6.9 billion in 2005.

The boards of Cisco and NDS have approved the acquisition, which is expected to close during the second half of 2012.

The purchase price is about 35 percent higher than the value of NDS when it was delisted from Nasdaq in 2009.

While we view the price as rich for a company growing sales less than 10 percent year on year, we believe it addresses a large opportunity in enabling service providers to offer comprehensive digital media and integrated video offerings, ISI analyst Brian Marshall said in a note.

While Cisco said the deal would add to earnings per share in the first year, Marshall said it was not clear how that would happen other than through job cuts.

Deals to acquire or merge Israeli and Israel-related tech companies were valued at $5.1 billion in all of 2011 -- the second-highest amount in a decade -- according to the Israel Venture Capital Research Center.

The NDS acquisition is the largest after the $4.8 billion purchase of Chromatis by Lucent in 2000.

NDS's flagship product is its encryption and conditional access system VideoGuard, which is installed on home TVs via smartcards integrated into set-top boxes.

NDS products are at the heart of News Corp's technological infrastructure: The company's coding system allows it to control the channels provided to each subscriber on multichannel TV as well as billing.

NDS's customer portfolio will broaden Cisco's presence into new segments of the service provider market, Marthin de Beer, Cisco's senior vice president of video, said in a company blog.

It will expand Cisco's reach into emerging markets where NDS has a strong footprint with customers such as CCTV in China and Bharti and TataSky in India, he added.

Founded in Israel in 1988 and headquartered in London, NDS maintains a large research and development center in Jerusalem.

Cisco shares were down 1.4 percent at $19.92 in afternoon trading.

(Reporting by Tova Cohen in Tel Aviv and Nicola Leske; and Yinka Adegoke in New York; Editing by David Holmes, Maureen Bavdek and Lisa Von Ahn)

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