As we said last week, the deal offered by Ericsson to buy Tandberg TV was so much more attractive than the previous offer from Arris, that it was bound to win the day. Now the Board of Tandberg has said it agrees and has confirmed that it is recommending the Ericsson offer after all, an about turn from the position a few weeks back when it recommended the deal from Arris.
The statement from the Board this week points out that Ericsson, although approached by Tandberg’s advisors, had never signed an NDA or got its hands on internal financial statements and projections, and so had not engaged in the bidding process until after it was over. Other un-named companies apart from Arris had gone through due diligence and made offers, but the Arris deal had won through initially.
In our view the Arris deal was a good opportunity for Tandberg to become a US operation, and enjoy the benefits of a US public quotation, which was likely to end with an altogether higher valuation. But Arris brought it very little in terms of scale and unless Tandberg management had been promoted to running the show, it was unlikely to work out.
Ericsson gives the company far greater tier one telco and cellco access and global scale, and will not be a case of the tail wagging the dog, as it might have been with Arris. Although we have not seen Ericsson give vent to a full blown IPTV vision as yet, it is known to be actively bidding in a couple of IPTV accounts, one in South America, with its middleware partner Kasenna. If it lands either of these outstanding deals, a bid for Kasenna would bring Ericsson a middlware and VoD player to merge into Tandberg and a clear IPTV strategy. At present rivals to Tandberg are saying that Ericsson only wants Tandberg for a video convergence play for its cellular operators, but that makes no sense and it would miss out on a lot of opportunities if it did not marry its IMS vision and its cellular legacy to fixed IPTV services.
Tandberg said that an approach was made by Deutsche Bank to Ericsson in the fall of 2006 with but there was no contact between Tandberg and Ericsson from that point until Ericsson management came out of the closet with the offer.
Tandberg repeated its logic about the increasing consolidation of both customers and competitors, and the loss of business opportunities to larger competitors, and that logic points unerringly to taking the Ericsson deal because it does not subject Tandberg shareholders to the risks of changes in the Arris share price.
Tandberg shareholders who have accepted the Arris offer are free to cancel their acceptance under the terms set out in the Arris’ offer document. If anything goes wrong with the Ericsson Tandberg acquisition Ericsson will have to pay Tandberg the amount of the termination fee from the Arris deal, some $18 million, so it is also protected there.