News

Cisco Tunes Global TV Story With $5B Bid for NDS

3/19/2012 12:01 AM Eastern

With its planned takeover of NDS Group,
Cisco Systems is doubling down on software for delivering
video across a galaxy of devices — and it wants to acquire
a more international flair, too.

The networking giant will pay $5 billion to acquire
NDS, a top provider of content security and video software
to pay TV operators worldwide.

The NDS acquisition would bulk up Cisco’s software offerings
for serving cable, satellite and telco TV operators
amid rumors it is seeking to sell off the low-margin settop
business unit. The NDS deal, if completed, would be
Cisco’s biggest acquisition in the sector since its $6.9 billion
purchase of Scientific Atlanta in 2006.

NDS would give Cisco one of the most widely deployed
conditional-access systems for encrypting and authenticating
TV programming, as well as inroads with large
operators. In the U.S., its customers include DirecTV,
Cox Communications and Cablevision Systems. Overseas,
London-based NDS also boasts a strong client roster,
as well as in emerging markets like China and India.

“While there are a number of benefits to this deal, we
believe the deal was really done to expand Cisco’s worldwide
footprint in video delivery,” Jefferies & Co. analyst
George Notter wrote in a research note. “Cisco is largely
a North American player, and NDS has a valuable footprint
in fast-growing emerging markets.”

However, while the NDS acquisition is a good strategic
move, the $5 billion price tag “seems a bit expensive,” Notter
added. Cisco stock inched down 0.7%, to close at $19.91,
last Thursday (March 15), when the deal was announced.

NDS completed a transaction to go private
in early 2009. Private equity firm Permira
Funds owns 51% of the company and
Rupert Murdoch’s News Corp. holds a 49%
stake. For News Corp., the deal is positive
because NDS is a “nonstrategic asset” and
the sale would result in a pre-tax gain of
$1.5 billion, Sanford Bernstein analyst Todd
Juenger wrote in a note.

Cisco is positioning the NDS acquisition
as extending the Videoscape platform strategy
to let service providers and media companies
deliver Web-enabled, multiplatform
video services.

“Our strategy has always been driven by
customer need and on capturing market
transitions,” Cisco chairman and CEO John
Chambers said in announcing the deal.
“Our acquisition of NDS fits squarely into this strategy,
enabling content and service providers to deliver new
video solutions that leverage the cloud and drive new
monetization opportunities and service differentiation.”

The NDS product portfolio is “highly complementary”
to Cisco’s, NDS executive chairman Abe Peled
said. He added that following the acquisition, Cisco
will continue to pursue NDS’s strategy of open software
and services, working with a “wide range” of settop
box manufacturers.

NDS’s 5,000 employees will become part of Cisco’s Service
Provider Video Technology Group, headed by senior
vice president and general manager Jesper Andersen. In
July 2011, NDS hired Dave Habiger, formerly CEO of Sonic
Solutions, to replace Peled, who after 16 years leading the
company assumed the role of executive chairman.

The acquisition is expected to close in the second half
of 2012, subject to closing conditions including regulatory
approvals in the U.S. and elsewhere.

Cisco said it expects the NDS acquisition to be accretive
to earnings in the first full year on an adjusted basis.
The company noted that a significant portion of NDS’s
revenue is recurring, with long-term contracts that have
a typical average duration of five years.

AT A GLANCE: NDS

The privately held company has a global TV technology footprint:

Financials: Revenue of $974 million and net income of
$252 million for year ended June 30, 2011.

Employees: 5,000-plus worldwide

Major customers: DirecTV, BSkyB, China Central Television,
Cablevision, Cox, Liberty Global’s UPC, TataSky (India)

Products: NDS’s VideoGuard conditional-access system
has been deployed in 114 million pay-TV households; its
middleware is used on 206 million devices.

SOURCES: Company reports

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