In Cisco deal, Tandberg does just fine

October 1, 2009: 1:42 PM ET

On the face of it, Cisco's bid to purchase Norwegian videoconferencing rival Tandberg for $2.98 billion looks like a crushing victory for Cisco. After all, CEO John Chambers has been a tireless advocate for Cisco's version of the technology, using it to slash his travel budget and pitch a new way to work – and he's nabbing Tandberg for a mere 11% premium over Wednesday closing stock price. (Tandberg trades on the Oslo Stock Exchange.)

Surely Tandberg must have seen the growing threat from Cisco (CSCO), and wilted under pressure?

Not exactly. Read the fine print, and this looks like a good deal for Tandberg for three reasons.

First, Tandberg turned down a private equity takeover bid a year ago, and its stock price has nearly doubled since then – so this 11% premium is actually a nice chunk of change.

Second, Cisco typically likes to buy 100-person Silicon Valley startups for about $100 million. When the notoriously frugal Chambers is willing to dish out nearly $3 billion for Tandberg's 1,500 people – his first time buying a public company based outside the U.S. – it means he decided this deal was worth working outside Cisco's well-worn acquisition playbook.

Third, Tandberg CEO Fredrik Halvorsen will take over Cisco's videoconferencing efforts, reporting to Marthin de Beer, senior vice president of the Emerging Technologies Group. That shows Cisco respects Halvorsen's track record of double-digit annual revenue growth, and suggests the networking giant could move toward Tandberg's embrace of open standards for videoconferencing.

Make no mistake – this is a good deal for Cisco, too. The Tandberg acquisition transforms the company from a niche player in six-figure telepresence rooms into the number-one player in videoconferencing, with a product for every budget. It also creates new headaches for competitors like Hewlett-Packard (HPQ), Microsoft (MSFT) and Polycom (PLCM), who will now face a bigger foe with deep pockets.

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