UPDATE: Cisco Plans To Acquire NDS Group In $4 Billion Deal

Cisco Systems Inc. (CSCO) plans to acquire video software maker NDS Group Ltd. in a $4 billion deal, a purchase the technology giant said reflects its increased strategic focus on video.

The takeover of NDS Group, the U.K. provider of equipment to television service providers like cable and satellite companies, is a natural extension of Cisco's Scientific Atlanta business and fits with the company's recent intimations it would become more acquisitive, analysts say.

The deal, which also includes the assumption of nearly $1 billion of debt, is expected to close in the second half of the year.

Cisco noted it expects the acquisition will accelerate delivery of its Videoscape platform. It is expected to expand the tech giant's capabilities in the service provider market and expanding its reach into emerging markets, such as China and India. Cisco also expects the acquisition to add to its adjusted earnings in the first full year.

The buyout comes as NDS was on course to go public this year. The company is 51% owned by private-equity firm Permira, with News Corp. (NWSA)--the owner of Dow Jones--holding the remaining stake.

Joanna Makris, analyst at Mizuho Securities USA, said the NDS purchase increases Cisco's exposure to cable-service and other television providers, rather than the company's traditional focus on telecommunications providers.

Just as telecommunications providers are increasingly getting into the television game, Makris noted that "right now there's convergence going on between the television and PC, and what Cisco is trying to do is capitalize on that convergence."

Alkesh Shah, analyst at Evercore Partners, noted that as NDS is primarily a software company, the takeover doesn't raise red flags about margin degradation for Cisco. It fits with Cisco's search for high-margin businesses that are international, so the company can take advantage of its large cash assets sitting offshore.

Cisco Systems last month reported its fiscal second-quarter earnings rose 43% and gave an upbeat profit forecast as its renewed focus on networking equipment continued to pay off.

On the conference call for those results, executives noted that Cisco had a desire to become more acquisitive and seek out bigger deals.

Cisco shares were down 20 cents at $20 in recent premarket trading.

-By Joan E. Solsman and Tess Stynes, Dow Jones Newswires; 212-416-2291; joan.solsman@dowjones.com

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