Cisco is paying twice the value of the entire global annual market for videoconferencing equipment, at about $1.5 billion a year. But the fact that Tandberg is a Norwegian company allows Cisco to use an asset thats otherwise not very useful: the cash that has been piling up in its overseas subsidiaries.

Cisco, the worlds largest maker of computer networking equipment, had a cash balance of more than $35 billion at the end of July, most of that overseas. By buying an international company, Cisco is avoiding the U.S. taxes it would have to pay to bring the money home. The all-cash deal is Ciscos first acquisition of an overseas public company, CEO John Chambers said.

Chambers said the acquisition “showcases Ciscos financial strength and ability to quickly capture key market transitions for growth.”

Cisco has been focusing on the high end of the videoconferencing market, selling so-called “TelePresence” systems with multiple plasma screens that present life-size images of the participants to provide the illusion of face-to-face communication.

With Tandberg, Cisco gets the leading maker of video systems that range from small “videophones” to full conference-room setups.

Tandberg, which already has a substantial U.S. presence, had 40 percent of the global videoconferencing market in the second quarter this year, according to Wainhouse Research.

The No. 2 is Pleasanton, Calif.-based Polycom Inc., with 34 percent. Polycom was until recently the biggest supplier of videoconferencing gear, but has seen its lead overtaken by Tandberg thanks to smart, aggressive marketing and a strong product lineup, according to Wainhouse analyst Ira Weinstein.

“Its hard to say anything negative about Tandberg,” Weinstein said. “This company knows how to do this.”

Chambers said video communications is a key growth area, and getting Tandbergs product lineup will let Cisco further speed up adoption of the technology.

Ciscos most recent major acquisition was also video-oriented: It bought San Francisco-based Pure Digital Technologies Inc., maker of the popular Flip camcorders, for $590 million.

Sales of videoconferencing equipment have held up relatively well in the global economic downturn, as companies look for ways to save travel dollars. Wainhouse said the industrys second-quarter sales were down just 6 percent from a year ago. Meanwhile, Ciscos TelePresence sales nearly doubled year-over-year in its latest quarter, which ended July 25.

Tandberg employs 1,500 people globally, with joint headquarters in Oslo and New York. It said in a statement that the proposal was recommended by a unanimous vote of its board of directors. The acquisition is expected to close in the first half of 2010. Tandberg CEO Fredrik Halvorsen would continue to lead the group.

Cisco shares fell 32 cents, or 1.4 percent, to $23.22 in afternoon trading Thursday.

U.S.-listed shares of Radvision Ltd., an Israeli company that collaborates with Cisco on videoconferencing equipment, fell $2.89, or 33 percent, to $5.97. Chambers, however, emphasized that the goal was for Cisco to maintain its partnerships with other videoconferencing companies.

Polycom shares fell $1, or 3.7 percent, to $25.75, after initially rising on news of the deal. Stifel Nicolaus analyst Sanjiv Wadhwani speculated that the Cisco-Tandberg deal could bring Polycom into collaboration with Hewlett-Packard Co., which competes with Cisco for conference-room video setups.

—

Associated Press Writer Ian MacDougall in Oslo contributed to this report.

Source