“Cisco is buying Tandberg. They will pay that $3 billion in cash for the company at $26.45 for each share. It fits into plans to expand video conferencing and video communications business. The tele-presence unit is soaring. Cisco says the so-called collaboration market is now at $34 billion opportunity…This is Cisco’s 134th acquisition since 1993, and even though Cisco shares are trading right near their 52-week high, the company pays all cash for this transaction.
Video conferencing has been an absolute boon for the company with customers already snapping up more than 1,000 of the pricey systems that can run hundreds of thousands of dollars each. Today’s deal also opens another major competitive front with HP. That’s a company with its own video conferencing technology called halo…
I would be surprised if Cisco didn’t do another deal. This should be fairly easy to imagine. I wouldn’t suspect this is the end of it, but you’ve got other companies out there, Google and Intel, $19 billion in cash each. Microsoft, $36 billion, Apple, there’s a lot of cash. I think M&A will hit frenzy times over the next two months.” — CNBC’s Power Lunch 10/1/2009
Cisco (CSCO) has been known for its aggressive growth through acquisition over the last few years. They have bought some of the most promising small technology start-ups over the past, as you can see with the 134 acquisitions in the last 16 years. However, there is no doubt that this deal is unique. The Norwegian video conferencing company Tandberg is quite large in comparison as Cisco has offered $3.2 billion in cash. It is the largest acquisition since Webex (another online collaboration technology) in 2007, and it is the first time Cisco has bought a foreign public company in that span.
With Tandberg, Cisco will be able to expand its offering in video conference systems. Prior to this Cisco has sold mostly very high-end boardroom-type equipment, but this will help them compete on a more broad-based offering. Their hope is that video conferencing will begin to revolutionize the way businesses operate. This would allow them to save time and money by getting work done with less travel. Clearly, Cisco is excited about the growth potential in this burgeoning technology as a way to diversify themselves away from networking equipment. An interesting aside, who do you think will be providing the bulk of networking equipment capable of handling all of this bandwidth-intensive video?
Ockham is reaffirming our Undervalued stance on Cisco, even though the stock has risen 42% since the beginning of the year. The company is selling just below is historically normal valuation ranges of price-to-sales and price-to-cash earnings. We continue to believe that there is plenty of growth left for Cisco, and it is really the backbone of so many technologies. Cisco is making some really interesting moves in terms of acquisitions and strategy, and they have the cash on hand to further enhance those strategies.