Tandberg rumor seen as Cisco ploy, renews Polycom deal talk; limited risk likely on MPS buyout

By Cristal Cody

Tupelo, Miss., Oct. 30 - Some Tandberg ASA investors got a fright on Friday after reports circulated that Cisco Systems, Inc. was considering abandoning its $3 billion buyout offer for the Norwegian videoconferencing company.

The news raised the potential for a takeover of Polycom, Inc. and sent shares up before investors realized Cisco likely will complete the deal with Tandberg and sent Polycom's stock back down, analysts told Prospect News.

Meanwhile, an analyst said that Adecco SA's $1.3 billion takeover of Jacksonville, Fla.-based staffing service MPS Group, Inc. holds some slight regulatory risks.

On Wall Street, stocks slid on continued economic worries.

The Dow Jones Industrial Average gave up 249.85 points, or 2.51%, to close at 9,712.73.

The Standard & Poor's 500 index slid 29.92 points, or 2.81%, to 1,036.19.

The Nasdaq Composite index closed down 52.44 points, or 2.50%, at 2,045.11 on Friday.

Cisco plays trick or treat

Trading in Tandberg shares was temporarily halted on Friday after reports circulated that Cisco would walk from the takeover if it did not win 90% of shareholder approval in its tender offer.

San Jose, Calif.-based Cisco said on Oct. 1 it will pay 153.50 Norwegian kroner a share for Tandberg and launched the tender offer on Oct. 9.

Soon after, a group of Tandberg shareholders with a 24% stake in the company balked at the terms.

An analyst told Prospect News on Friday that talk of Cisco walking away from the deal is probably a negotiating tactic.

"People definitely see some risk to the Tandberg deal," the analyst said. "Without the credible threat of them walking away from the deal, it would be very difficult to negotiate. So Cisco has to float the possibility of it walking away in order to effectively negotiate with the holdout shareholders."

Cisco representatives did not return calls for comment on Friday.

Although the deal requires that Cisco receive 90% of shares tendered, the company could "divide and conquer," the analyst said.

"If they can break that alliance of 24% and pull some back to the table with a credible threat of walking away - that's a good negotiation strategy," the analyst said.

Cisco's current bid for Tandberg is considered a good buy and the combination would give the company a full range of videoconferencing products and services, the source said.

"But they can get something pretty similar by taking Polycom," the analyst said. "One of the questions is how important it is for Cisco to get a European presence. It would be very easy to integrate Polycom - they're a few miles away."

Pleasanton, Calif.-based videoconferencing market competitor Polycom's name has been mentioned several times in the past month as a potential takeover target since Cisco announced the plans to buy Tandberg, which had dual headquarters in Oslo and New York.

However, another analyst who follows Polycom doesn't see the company as a buyout target - at least for the moment.

"But I am kind of disappointed with the stock. The price went way down," Jim Kelleher, an analyst with Argus Research Co., told Prospect News on Friday.

Polycom shares rose as high as $22.75 on Friday before the stock closed down 20 cents, or 0.92%, at $21.47 after investors became less convinced of a potential Cisco deal.

Cisco has "other fish to fry," and Polycom has more likely acquirers, including telecoms equipment maker LM Ericsson Telephone Co., down the road, Kelleher said.

"I don't think the Tandberg deal will fall through," he said.

Tandberg shares closed down 1.79% at Kr 153.70.

Cisco shares dipped 71 cents, or 3.02%, to $22.81 on Friday.

U.S.-listed shares of Stockholm-based Ericsson fell 46 cents, or 4.24%, to $10.40.

Regulators rule MPS deal timeline

Adecco is expected to close its acquisition of MPS in January or February.

"However, a risk to the transaction is the timing of obtaining regulatory approvals," Christie Main Groves, an analyst with Pali International Ltd., said in a research note on Friday.

"Although the staffing industry is highly competitive, with low barriers to entry and low switching costs, competition issues could potentially arise in specific sub-segments," Groves said. "We would not rule out a thorough review by the [European Commission] due to Adecco's and MPS' strong presence in temporary professional and IT staffing in the U.K."

The transaction must receive regulatory clearances in the United States and the European Commission.

The competition issues could result in an extended filing period to gain regulatory approvals and push the deal's close into March, Groves said.

Zurich-based human resources services firm Adecco announced the offer on Oct. 20 to acquire MPS for $13.80 a share in cash.

The transaction is expected to receive the necessary approval from MPS shareholders.

"Although Adecco appears to be taking advantage of the current low valuations in the staffing sector, shareholders are likely to prefer to take cash now than wait for improvement in economic conditions," Groves said.

On Thursday, MPS reported third-quarter earnings dropped 68% to $5.45 million, or 6 cents a share, for the period ended Sept. 30. Revenue fell 29% to $408 million.

Shares of MPS lost 4 cents, or 0.29%, to close Friday at $13.52.

Adecco shares slipped 3.36% to 46.00 Swiss francs.

Mentioned in this article:

Adecco SA Swiss: ADEN

Cisco Systems, Inc. Nasdaq: CSCO

LM Ericsson Telephone Co. Nasdaq: ERIC

MPS Group, Inc. NYSE: MPS

Polycom, Inc. Nasdaq: PLCM

Tandberg ASA Oslo: TAA

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