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Cisco Continues Acquisition Streak, But Will Tandberg Deal Fall Apart?

This week's pickup was the set-top box division of a Chinese digital cable company, but it happens against the backdrop of Cisco conflict with Tandberg shareholders.

It's the fourth planned acquisition Cisco has announced since the beginning of October and the streak of recent purchases shows no signs of abating. The deal comes even as potential conflict with Tandberg shareholders threatens to derail Cisco's previously announced $3 billion acquisition of that videoconferencing stalwart.

The most recent deal for DVN gives Cisco greater reach into the largest cable market in the world. DVN designs and makes digital set-top boxes, smart cards, conditional access systems and related software. Cisco will fully acquire the set-top box division and also enter a go-to-market relationship with DVN to sell middleware, applications, integration and support services.

Cisco sees a growing market, thanks to 160 million Chinese cable subscribers and the Chinese government's mandate that all broadcasting go digital by 2015. Only about one-third of the current Chinese broadcast market has made the leap to digital cable, according to DVN.

The DVN business will operate end-to-end in China, according to Cisco, and will continue to be led by DVN CEO Terry Lui. Cisco expects the acquisition to close in the first half of 2010.

"Cisco and DVN have similar cultures that emphasize video innovation and a shared vision to enable multimedia-connected homes across China," said Ken Klaer, vice president and general manager, International Cable Business Unit at Cisco, in a statement. "With this acquisition, we will offer customers the powerful combination of DVN's products with the Cisco IP Next-Generation Network platform, and Cisco will be well positioned to engage in the largest digital transformation opportunity in the world today."

The DVN deal happens amid the backdrop of potential controversy between Cisco and Tandberg, perhaps the most high profile of its recent acquisitions, which also includes mobile infrastructure specialist Starent Networks and Software-as-a-Service Web security company ScanSafe.

Cisco announced on Oct. 1 that it would seek to acquire Tandberg, and at the time, Tandberg's board of directors unanimously approved the offer of $3 billion.

Since then, however, a group of shareholders representing 24 percent of Tandberg's stock have publicly stated they don't plan to accept the deal. Tandberg requires a 90 percent shareholder approval by Nov. 9 to accept Cisco's offer.

Late last week, various reports suggested Cisco would move to drop its pursuit of Tandberg rather than raise its offer. A response to those rumors from Cisco Chief Strategy Officer Ned Hooper did little to ensure the deal would work out.

Hooper responded to Tandberg speculation in a Monday blog post, suggesting that $3 billion is a "very good price" for Tandberg but adding that Cisco "will always act with fiscal prudence."

He left the door open for the Tandberg deal to go either way, and offered some corporate hardball seemingly directed at the disgruntled Tandberg shareholders.

"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," Hooper wrote.

"We have also been required to consider currency exchange costs which, at the current rates, have added at least $100m to our overall expense," Hooper wrote. "Our offer price reflects this balance and is based on a simple premise for both sets of shareholders -- fairness and value."

Hooper added: "Is a 38.3 percent 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."

Each of the recent acquisitions sees Cisco bolstering its capabilities in a different market or technology segment -- a point Cisco is likely to address in its quarterly earnings call Wednesday.

Earlier Tuesday, Cisco also unveiled a partnership with EMC and VMware to develop and co-brand data center product sets.

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