U.S. network equipment maker Cisco raised its bid for Norwegian video conferencing equipment maker Tandberg and said it was backed by holders of more than 40 percent of its shares after few warmed to its previous offer.

Cisco's new offer of 170 crowns per Tandberg share, up from the 153.50 crown bid that more than 90 percent of shareholders had dismissed, values Tandberg at nearly 19 billion Norwegian crowns ($3.41 billion).

Few analysts expected Cisco to walk away, having repeatedly touted online videoconferencing as a key growth area, especially as companies save on travel costs during the downturn.

Tandberg shares were up 3.9 percent at 163.70 crowns at 1321 GMT after a trading halt was lifted. In early trading the stock hit a lifetime high of 167.50 crowns. Cisco shares traded in Europe were down 0.06 percent.

We have not yet made a decision about this offer, but at this level I believe it has a fair chance of succeeding, Rune Selmar, director at investment group Rasmussengruppen, which owns about 0.6 percent of Tandberg's stock, told Reuters.

Panta Capital, a small London firm advising on merger arbitrage that had called the initial bid too low, said the new offer was fair and likely to succeed. I think it's a done deal now, Peter Germonpre of Panta told Reuters.

Germonpre said the new offer was more in line with the valuation of the other major mid-tier video conferencing equipment provider, U.S. Polycom Inc
. He said the small group of shareholders whose views he had represented in his earlier statement would be more inclined to tender their shares.

Even analysts who have a higher price target on Tandberg shares say the new bid will probably win shareholder approval.

This still undervalues Tandberg, which is worth 180 crowns on a stand-alone basis and at least 200 with a takeover premium, said Arild Nysaether, analyst at Fondsfinans. But it is an improvement and stands a fair chance of coming through.

FINAL PRICE

Cisco said the offer, which expires on December 1, was backed by Tandberg's two largest shareholders, funds Folketrygdfondet and OppenheimerFunds, and had received acceptances from owners of more than 40 percent of the stock.

The new offer represents the ... final price for this transaction, Cisco said in a statement.

If the offeror does not achieve the desired level of acceptances, the offeror will withdraw the new offer and evaluate alternative ways to expand Cisco's activities in the video communications market, it said, adding that it could waive the 90 percent acceptance condition.

A person familiar with the matter said the new offer followed a weekend of telephone calls made by Cisco officials and Cisco's financial advisers at Carnegie and Lazard to canvass shareholder opinions.

The market for videoconferencing equipment falls into three categories, with Cisco playing at the very high end and the low end and Tandberg with a leading position in mid-tier services.

Cisco bought its way into the market with its purchase of desktop videoconferencing service Webex in 2007, and with it increasingly competes with Microsoft and Google , and to a lesser extent free calls provider Skype.

Cisco, Hewlett-Packard and others lead the high-end of the market for so-called telepresence systems. More than just cameras, they are custom-designed digital boardrooms where executives and boards of directors can hold global meetings.

Tandberg has a 40 percent market share in the fast-growing mid-market for videoconferencing equipment, according to data from industry analysts Wainhouse Research, followed by Polycom.

Shares in Radvision Ltd , another provider of mid-tier video equipment, sank in pre-trading on Monday on fears that the Tandberg deal would hurt its contracts with Cisco.

No other company has publicly shown interest in a Tandberg bid, though analysts have talked of suitors such as Microsoft, Hewlett-Packard, International Business Machines and Avaya . Whether the deal closes or not, it could trigger more deals in the sector, with Polycom seen as a target.

(With reporting by Camilla Bergsli and Aasa Christine Stoltz in Oslo, Quentin Webb and Eric Auchard in London; Editing by Will Waterman)

($1 = 5.577 Norwegian crowns)