By Peter Burrows @
Business Week

Cisco has sweetened its acquisition offer for Norway-based videoconferencing company Tandberg by 11%, to $3.4 billion. That should be enough to satisfy the 90%-plus of investors who had withheld their support for the existing deal. The company says more than 40% of Tandberg shareholders, including the largest ones, have "pre-accepted the offer." More details here from Bloomberg.

I'd heard that an increase of 10% to 15% would likely get the deal done, so this improvement seems designed to accomplish two simultaneous goals: to put the acquisition over the top, without sending the message that Cisco will panic and radically pay up when shareholders of acquisition targets hold out for more. That's critical for a company as acquisitive as Cisco, which has done four large deals in just the last 45 days. At Cisco's shareholder meeting on Nov. 12, Cisco CEO John T. Chambers warned that "I'll walk" rather than overpay. "We're not going to pay a price that we don't think is good for shareholders."

One way or another, Chambers needed to get this deal done. He has said that video is his number one strategic priority, and video-conferencing in particular is a great opportunity for Cisco. Few, if any, forms of traffic chew up bandwidth and require more sophisticated routing and switching than videoconferencing--which needs to be not only high-res, but real-time.

And buying Tandberg was clearly the best way to accelerate his grand video plans. The company is not only the market leader in videoconferencing gear, but it's by far the hottest player in the market--not only with the mid-tier conference room systems that are the bulk of the industry, but also for high-end telepresence systems like the ones Cisco sells. Multiple industry sources I've spoken to say Tandberg routinely beats Cisco in deals for these systems, which create the illusion that you're actually sitting in the same room with other attendees, wherever they may be.

Also, Cisco needed to find a way to embrace open standards for its telepresence offerings. Currently, Cisco's systems only work with other Cisco systems, for the most part. That's unacceptable, for a company that built its Internet equipment empire by championing the most important open standard of them all--the Internet Protocol. Analysts say Tandberg is a leader not only in product innovation, but in making its gear inter-operate with other brands.

Here's a video of Chambers and Tandberg CEO Fredrik Halvorsen talking about the deal at the time.

[via Business Week]