2nd UPDATE: Cisco To Acquire Video-Software Maker NDS Group
March 15 2012 - 12:27PM
Dow Jones News
Cisco Systems Inc. (CSCO) agreed to acquire video-software maker
NDS Group Ltd. for $4 billion, the company's biggest deal in more
than two years and a reflection of Cisco's focus on video.
The U.K.-based NDS--partially owned by News Corp. (NWS,
NWSA)--provides equipment and services to television providers like
cable and satellite companies. Cisco said it was attracted by NDS's
technology, its services-based business model that derives more
than half of its revenue from recurring sources, and how NDS could
help grow the Videoscape product Cisco sells to online media
providers.
Under the deal, expected to close in the second half of the
year, Cisco also will assume nearly $1 billion of debt, in addition
to paying the $4 billion. Cisco, which had been in less formal
talks with NDS since last year, entered exclusive talks to buy the
company about three weeks ago, a person familiar with the deal
said.
Cisco, which sees the acquisition adding to its adjusted
earnings in the first full year after completion, doesn't expect to
encounter big antitrust hurdles, another person familiar with the
matter said.
Cisco shares slid 1.7% to $19.86.
The buyout comes as NDS was on course to go public this year.
The company is 51% owned by private-equity firm Permira Advisers
LLP, with News Corp. holding the remaining stake. News Corp. also
owns Dow Jones & Co., publisher of this newswire and The Wall
Street Journal.
News Corp.'s Class A shares rose nearly 1% to $20.21. The deal
will help simplify News Corp.'s structure that some investors say
contains too many minority stakes in varied companies.
NDS, with more than 5,000 employees, makes software used by
cable-television and satellite companies to encrypt signals to
deliver TV programming and other video though various devices,
including TVs and set-top boxes. Its customers include DirecTV and
China Central Television. The company was taken private in 2009 in
a deal that valued it at $3.6 billion.
NDS had revenue of $957 million in the fiscal year ended June
30, according to a regulatory filing. It reported income of $252
million.
The tie-up allows Cisco to tap into some of its overseas cash,
which Chief Executive John Chambers called an additional benefit.
The company had more than $46 billion in cash at the end of
January, but only a small amount is in the U.S.
Chambers has been among the most vocal advocates of a tax
holiday that would allow U.S. businesses to repatriate cash without
having to pay much tax. Absent that, he has said Cisco is likely to
spend it overseas.
Historically one of Silicon Valley's most active buyers, Cisco
has focused more recently on acquiring start-ups and small
companies. Last month, though, Cisco executives said on the
company's earnings conference call that they were seeking bigger
acquisitions.
Of late, the San Jose, Calif., company has been backtracking
from an effort to expand into 30 new businesses, instead narrowing
its focus to a few core areas, including video. The deal is a
natural extension of Cisco's Scientific-Atlanta set-top business,
although Chambers said NDS and Scientific Atlanta products have
almost no overlap.
The addition of NDS would accelerate Videoscape's shift in
revenue streams from set-top boxes into more profitable
service-based models by at least one to two years, Chambers said.
Videoscape--which includes a set-top box, software interface and
other gear--allows users to watch and search across live, on-demand
and recorded TV programming as well as online video.
Evercore Partners analyst Alkesh Shah said NDS's financial
profile should benefit Cisco, as both its earnings and revenue
growth and gross-margin levels trump the tech giant's. Chambers
noted that NDS was in the hot area of technology that allows
service providers to bring content to any device and be able to
monetize it.
Shah also said NDS is a very interesting play in the emerging
markets of Brazil, India and China because of its strong encryption
capabilities, which give video providers security and access
control for set-top boxes. Encryption is important in those
countries, and NDS's growth is concentrated in those areas, Shah
said.
Cisco executives, meanwhile, said NDS's strong relationships
with satellite providers complement Cisco's own base of
telecommunications companies.
Joanna Makris, analyst at Mizuho Securities USA, noted that
"right now there's a convergence going on between the television
and PC, and what Cisco is trying to do is capitalize on that
convergence."
-By Joan E. Solsman and Ben Worthen, Dow Jones Newswires;
212-416-2291; joan.solsman@dowjones.com
--Dana Cimilluca and Anupreeta Das contributed to this
report.
News (NASDAQ:NWSA)
Historical Stock Chart
From Jul 2024 to Aug 2024
News (NASDAQ:NWSA)
Historical Stock Chart
From Aug 2023 to Aug 2024