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Ericsson Offers $1.4B for Tandberg TV

Ray Le Maistre
LR Cable News Analysis
Ray Le Maistre, Editor-in-Chief
2/26/2007

Ericsson AB (Nasdaq: ERIC) firmed up its intentions to be a major IPTV player Monday with a $1.4 billion all-cash offer for video encoding specialist Tandberg Television , about 10 percent higher than the takeover bid tabled by Arris Group Inc. (Nasdaq: ARRS) in January. (See Ericsson Bids for Tandberg TV.)

Six weeks ago Arris made an offer of 96 Norwegian Kroner (US$15.67) for each Tandberg TV share -- NOK80 in cash and NOK16 in Arris stock. That sent Tandberg TV's stock up to NOK99 ($16.16), suggesting the video equipment vendor's shareholders wanted a better offer from Arris or another bidder. (See Arris Pounces on Tandberg TV.)

Now they have it. Ericsson is offering NOK106 ($17.31) in cash for each Tandberg TV share, an offer worth NOK8.5 billion, or $1.39 billion.

The Swedish giant says it already owns 11.7 percent of Tandberg TV's stock, has the backing of shareholders who represent a further 13 percent, and will publish an offer document this week.

It also says the acquisition, if completed in the second quarter, would be accretive to its earnings in 2007, excluding one-off costs. Tandberg TV reported revenues of $350 million, and net income of $55.6 million (earnings per share of $0.70), for 2006.

Tandberg TV's board, which has recommended the Arris offer to its shareholders, says it has noted the "unsolicited, voluntary, all-cash offer" from Ericsson, and won't comment further until it has examined the details and conditions in the offer document.

The news sent Tandberg TV's stock up more than 10 percent to NOK111, most likely in expectation of an improved counter-bid from Arris or another player. Ericsson's share price is up by 0.20 Swedish Kroner, just less than 1 percent, to SEK26.10 on the Stockholm exchange.

In a research note issued this morning, analysts at Dresdner Kleinwort say they believe a counter bid from Arris or even Motorola Inc. (NYSE: MOT) is possible. However, they add that, with about 12 percent of Tandberg TV already under its ownership, Ericsson "should have the upper hand" in any bidding war.

Ericsson says acquiring Tandberg TV, a company with about 175 customers and a 25 percent market share of the global video processing market, would be a "significant step" towards a "world leadership position in IPTV... In combination with Ericsson's existing products the combined companies will be uniquely positioned in offering complete IPTV solutions." (See Tandberg Wins Deal, T-Com Croatia Uses Tandberg TV, Tandberg Wins Shanghai, and USDTV Picks Tandberg.)

Ericsson has been on a shopping spree of late, citing its IPTV strategy as the main driving force behind its acquisitions. (See IPTV Drives Ericsson to Redback and Ericsson Buys Entrisphere.)

And last week it made its first IPTV customer announcement, though this just highlighted how far it trails some of its major competitors, such as Alcatel-Lucent (NYSE: ALU) and Siemens Communications Group , in the IPTV sector. (See Ericsson, Nortel Push on IPTV.)

Now, though, Ericsson is making it clear that it intends to be among the leading pack in IPTV hardware and service delivery software. And executives in the telco TV sector expect the Swedish firm to strengthen its hand even further with a bid for video server and IPTV middleware partner Kasenna Inc.

— Ray Le Maistre, International News Editor, Light Reading

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digits
digits
12/5/2012 | 3:13:54 PM
re: Ericsson Offers $1.4B for Tandberg TV
Stock market opens, Arris stock drops $1.87, more than 12 percent, to $13.42.

Looks like investors don't fancy a scrap with Ericsson.

Ray
Michael Harris
Michael Harris
12/5/2012 | 3:13:53 PM
re: Ericsson Offers $1.4B for Tandberg TV
It's a lose-lose. Either Arris ups the ante, which investors don't fancy, or they allow a new carrier vendor to gain a major cable foothold, not attractive either. Which is "least worst?"

Best move may be for ARRIS to bid for Terayon or RGB.

BTW, look at Ericsson making a bold push into cable while AlcaLu watches the action from the sidelines.

Hey, maybe AlcaLu will be inspired to buy Arris after Ericsson gets Tandberg and then everyone is covered. ;)
digits
digits
12/5/2012 | 3:13:53 PM
re: Ericsson Offers $1.4B for Tandberg TV
I wonder where Harmonic might fit into all of this?
optiplayer
optiplayer
12/5/2012 | 3:13:48 PM
re: Ericsson Offers $1.4B for Tandberg TV
"Best move may be for ARRIS to bid for Terayon or RGB."

I wouldn't be surprised if Arris shifts from acquirer to target as it is only going to get tougher for them to compete with MOT and CSCO over time in the CPE and CMTS business. They are banking on edge QAM for growth but that is going to be a crowded field.

MOT, CSCO, ERIC and ALU could be acquirers though ALU is likely a mess. Not sure that Terayon or RGB provides the scale to make a difference for Arris.
nextinning
nextinning
12/5/2012 | 3:13:42 PM
re: Ericsson Offers $1.4B for Tandberg TV
opti, I think you have this one dead right - ARRS and TREN don't make sense and if they were to go after it I would have to reassess my opinion of ARRS.

What surprises me is that LightReading seems to be ignoring the depth and quality of the Harmonic product line today. Given this product line and HLIT's vast international exposure, not to mention its complimentary ties with US cable companies and its relatively low market capitalization, I think it makes even more sense that Tandberg for ARRS.

Regards, Paul
nextinning.com
alchemy
alchemy
12/5/2012 | 3:13:38 PM
re: Ericsson Offers $1.4B for Tandberg TV
optiplayer writes:
I wouldn't be surprised if Arris shifts from acquirer to target as it is only going to get tougher for them to compete with MOT and CSCO over time in the CPE and CMTS business. They are banking on edge QAM for growth but that is going to be a crowded field.

I have to disagree about the "tougher to compete". Cisco/SA in the MTA business are inferior to the Arris offering. Arris has actively engineered their product for many years. Cisco/Linksys/SA blindly take a reference design and put their plastic around it. It's no surprise that Arris is now the dominant MTA vendor and has overtaken Motorola who took a similar reference port approach. In the CMTS space, the C4 is clearly best of breed. It has a much better redundancy story than anything from Cisco and it has a better stability history than the BSR64K. Now that the Cisco modular CMTS advocates have left their MSO positions and returned to the San Jose mother ship, the Cisco "don't buy that OLD CMTS technology, wait for our NEW modular CMTS technology" ploy as mostly been debunked. What MSOs care about is increased density, more flexibility, and lower costs. A high density downstream-only and high-density upstream-only blade for the C4 (and BSR64K and Cuda) solve the problem and Cisco is sitting there with the least attractive solution since they add huge complexity and poor redundancy attributes by distributing the functions to external boxes. Arris has the best technology out there and they're far more nimble than MOT or Cisco. Their real need is to diversify away from the declining margin MTA and CMTS business.

I do think Ericsson buying Arris makes sense since it gives them a relationship they don't have today with a potential to sell their IMS gear in the future. Ericsson is also well enough managed that they probably wouldn't screw Arris up. LU was in and out of the market so many times that I doubt ALU would be taken seriously by the MSOs even if they bought Arris. I don't see MOT or Cisco buying Arris since there's 100% product overlap.
nextinning
nextinning
12/5/2012 | 3:13:30 PM
re: Ericsson Offers $1.4B for Tandberg TV
If you're really interested to learn the answer to your question, I think I can bring you up to date. Just write [email protected]

Regards, Paul

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