At the end of last week, there was some significant speculation and rumor in the media about our offer to acquire TANDBERG, a global leader in video communications. As a result, I wanted to reiterate a few important points about the transaction and Cisco’s broader M&A principles.
We strongly believe our offer is a very good price for Tandberg shareholders. We have commenced a cash tender offer, unanimously recommended by the Tandberg Board, to purchase all the outstanding shares of TANDBERG for 153.5 Norwegian Kroner per share for approximately $3.0 billion. As Tandberg noted in its own communications to the Oslo Exchange, Cisco’s offer represents a 38.3% premium to the closing share price on July 15 – which is one day prior to major media reports of a possible transaction. The price also represents a 102% 12 month return for Tandberg shareholders, far surpassing global market index returns.
Cisco has established a strong record as an acquirer by creating good returns for shareholders of both the companies it acquires as well as Cisco. This deal is no different – we have focused on ensuring strong returns for Tandberg and Cisco shareholders. Cisco’s strategy has always been about maximizing value and opportunity while minimizing risks. The value of the combination of Tandberg and Cisco has been widely covered and discussed, but the risks, from capturing synergies and executing on our first ever acquisition of a European public company, to the overall integration complexity associated with engineering and sales spread across both Norway and the UK, are also important. We have also been required to consider currency exchange costs which, at the current rates, have added at least $100m to our overall expense. Our offer price reflects this balance and is based on a simple premise for both sets of shareholders – fairness and value. Is a 38.3% premium fair for Tandberg shareholders? Absolutely. Does it lock in a superior return for Tandberg shareholders and protect them from future market risk? Yes. Does it also fairly reflect risks borne exclusively by Cisco shareholders? Yes.
The bottom line is that Cisco will always act with fiscal prudence. The collaboration market is a $34 billion dollar opportunity where voice is currently the largest application. We believe that video will become the core of the collaboration market, but, it will require substantial innovation and investment to drive this market transition. We’ve already seen increased competition for the traditional video players in the market, as broad based collaboration vendors increasingly focus on video. For all these reasons we believe the time is right for Cisco and Tandberg to come together to help accelerate global adoption of collaboration technology through interoperable, standards-based products. However, no acquisition should be pursued or completed if it runs counter to the broader principles of prudence and financial fairness.
Given all the speculative “noise” last week, I wanted to take the time to reiterate these points because it is important to me, and to Cisco, that all of our stakeholders understand our position as we near the end of the offer period.