Cisco's Tandberg bid too low, say investment firms

Two investment consulting companies laid out objections to Cisco's US$3 billion offer for Norwegian videoconferencing vendor Tandberg on Friday, saying in an open letter to Cisco and a press interview that the bid undervalues Tandberg.

Cisco and Tandberg announced the deal on 1 October, but it still needs to be approved by Tandberg's shareholders. The agreement requires owners of 90 percent of the company's shares to sign off on the acquisition by 9 November. According to recent media reports, holders of 24% of Tandberg stock don't plan to accept the deal. Cisco suggested on Monday that it might drop its offer rather than raise it.

Acquiring Tandberg, one of the major suppliers of videoconferencing equipment, would expand Cisco's already strong position in technology for virtual meetings.

Cisco has high-definition, immersive videoconferencing systems in its Telepresence line as well as desktop collaboration offerings in its WebEx line. Chairman and CEO John Chambers has said video is the key application that will shape communications and drive network infrastructure growth in the coming years.

Panta Capital Managing Director Peter Germonpre said in an interview that Cisco would have to offer at least 170 Norwegian Kroner per share, about 11 percent above the current bid of 153.5 Kroner, according to a Wall Street Journal report. Germonpre reportedly said Panta and investment consultants Scott & Associates own less than 1 percent of Tandberg but have heard other shareholders take the same view.

In an open letter on behalf of Tandberg shareholders, addressed to Chambers and chief strategy officer Ned Hooper, Panta and Scott said Cisco isn't offering enough of a premium.

Among other things, the consultants said Tandberg's third-quarter financial results beat the consensus estimates of analysts for revenue and profit.

In addition, they said estimates of the company's 2009 results have fallen by only about 9 percent, outperforming estimates for the technology sector and for Tandberg rival Polycom, which fell between about 30 percent and 45 percent. They said Cisco is valuing Tandberg on a par with Polycom while the Norwegian company is actually outperforming its competitor.

When the deal was announced, Cisco said its offer represented a 38.3 percent premium over Tandberg's share price on July 15, which Cisco said was just before the company's stock started to rise because of takeover speculation. Panta and Scott rejected that argument, saying Tandberg had been seen as a takeover target before then.

Cisco reiterated its position on the Tandberg offer in a prepared statement.

"We believe we are paying a fair price for a quality asset, and our offer comes recommended by the Tandberg Board of Directors," Cisco said. "Further, Cisco's general approach to M&A activities is that no acquisition should be pursued or completed if it runs counter to the broader principles of prudence and financial fairness."