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Ericsson puts in rival bid for Tandberg Television

Mon, 02/26/2007 - 7:37am
Jeff Baumgartner, CED

Ericsson has sparked a possible bidding war for Tandberg Television, putting forth a hostile, unsolicited offer that places a 10.4 percent premium on the offer originally tendered by ARRIS.

Ericsson's sweetened cash offer is valued at about $1.4 billion. ARRIS' bid of cash and stock is valued at roughly $1.2 billion.

Beyond the unsolicited offer announced Monday, Ericsson has already started to pave the way toward cementing the deal. Ericsson noted it has already acquired about 9.3 million shares of Tandberg, equal to 11.7 percent of all outstanding Tandberg shares. Holders of another 13 percent of outstanding shares and votes of Tandberg "have irrevocably agreed to tender their shares in [Ericsson's] cash offer," the company added.

Ericsson said its offer represents a premium of 18.2 percent versus Tandberg's 90-day volume weighted average stock price.

ARRIS, a company spokesman said, is reviewing Ericsson's counter offer.

"Until that review is completed...we're not going to have any additional comments. If we have further comments, we'll make it after that review is completed," the spokesman said in a voice mail message to CED, adding that ARRIS' offer for Tandberg remains outstanding.

Tandberg Television, meanwhile, issued a statement that it will review the terms and conditions of the Ericsson offer and, with the assistance of its financial and legal advisors, will then make a recommendation to Tandberg's shareholders.

Ericsson said a combination with Tandberg will enable them to aggressively attack the IP television sector, and offer technologies and services across a range of cable, telco and satellite service providers. Ericsson has expanded its IPTV portfolio via recent acquisitions of Redback Networks and Entrisphere

"Ericsson and Tandberg Television is a strong combination with our unique ability to offer complete IPTV solutions," said Carl-Henric Svanberg, Ericsson's president & CEO, in a statement. "Tandberg's leading TV technology and customer base and our global presence and strong position in IP networks and IMS, will create a leading player in networked media solutions for telecom, cable and satellite operators, as well as media companies."

If its bid is successful and the deal is consummated, Ericsson said Tandberg would become a wholly-owned subsidiary.

Analysts, however, have previously lauded the combination of ARRIS and Tandberg, noting that the companies offer complementary technologies and that the resulting entity would serve as a competitive foil against bigger rivals such as Motorola Inc. and Cisco Systems Corp.

But some in that same group now believe ARRIS will not up the ante for Tandberg and will instead seek out other buying opportunities to fill out its technology portfolio.

"We do not believe ARRIS will match or trump today's surprise hostile offer by Ericsson to acquire Tandberg TV," said Anton Wahlman of ThinkEquity Partners, in a research note. "Instead, we believe ARRIS will collect a potential breakup fee and move on to other, probably smaller, targets."

"Given Ericsson's grip on Tandberg TV's shareholders and solid balance sheet, it may be tough for ARRIS to wrangle it [Tandberg] away," added Alan Bezoza, SVP of equity research at Oppenheimer & Co., in a research note.

According to ARRIS' voluntary offer documentation, ARRIS is entitled to a break-up fee of $18 million. 

ARRIS, Wahlman predicted, might collect those funds and train them on merger opportunities with Terayon Communication Systems, Harmonic Inc. or C-COR Inc. In previous months, ARRIS has also been viewed as a potential suitor of Concurrent Computer Corp., which, like ARRIS, is based in the Atlanta, Ga., area.

Bezoza agreed that ARRIS could look to other acquisition targets "or even more likely, become a takeover candidate themselves."

Ericsson, those in the cable industry may recall, was a DOCSIS modem force in the late 1990s and early 2000s. In a bid to buy market share in mid-2001, it was among the first vendors to sell DOCSIS modems to cable operators for less than $100 each. That wasn't enough, however, to keep Ericsson in the cable modem business for long, as margins on DOCSIS modems continued to shrink. In November 2001, Ericsson sold its Lynchburg, Va.-based cable modem business to Canada-based Aastra Technologies.

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