Advanced Television

Cisco swoops on NDS in $5bn deal

March 15, 2012

In a move aimed at expanding its ability to transform how service providers and media companies worldwide deliver next-generation video experiences to subscribers, Cisco has announced its intent to acquire video software and content security solutions specialist NDS.

Cisco says the acquisition of NDS will complement and accelerate the delivery of Videoscape, its comprehensive platform that enables service providers and media companies to deliver next-generation entertainment experiences. Acquiring NDS will broaden Cisco’s opportunities in the service provider market, expanding its reach into emerging markets, such as China and India, where NDS has an established customer footprint.

Under the terms of the agreement, Cisco will pay approximately $5 billion, including the assumption of debt and retention-based incentives, to acquire all of the business and operations of NDS. The acquisition has been approved by the boards of directors of both companies.

The acquisition is expected to close during the second half of calendar year 2012, subject to customary closing conditions, including regulatory review in the United States and elsewhere. The net impact to Cisco is expected to be accretive to EPS in the first full year on a non-GAAP basis.

Cisco’s open, standards-based Videoscape platform, which spans the cloud, the network and end-user clients, is a key part of the company’s overall video strategy to deliver TV experiences that make access to content more visual, mobile and social for consumers, while protecting and enhancing the value of content for service providers and media companies.

According to Cisco, the addition of NDS’s leading software solutions, such as the end-user viewing client and content security solutions, combined with its systems integration expertise, will accelerate the delivery of the Cisco Videoscape platform.

The acquisition reflects Cisco’s increased strategic focus on video, one of its five foundational priorities, and its investment in software and services revenue streams and competencies.

Cisco also says the deal underscores its commitment to its ‘build, buy, and partner’ strategy to grow through a combination of organic innovation, targeted acquisitions and strategic partnering.

In terms of valuation, on a forward-looking basis, the acquisition is generally in line with the earnings before interest, taxes, depreciation and amortisation (EBITDA) multiples paid when NDS was taken private in 2009, and is within the multiples ranges for comparable deals, including Cisco’s acquisition of Tandberg.

Prior to the close, Cisco and NDS will continue to operate as separate companies. Upon completion of the transaction, NDS’s global operations, including sites in the United Kingdom, Israel, France, India and China, and its approximately 5,000 employees will join the Cisco Service Provider Video Technology Group (SPVTG), led by Senior Vice President and General Manager Jesper Andersen.

Dr. Abe Peled, NDS Executive Chairman, will be named Senior Vice President and Chief Strategist for Cisco’s Video & Collaboration Group, of which SPVTG is a part. Dr. Peled will report directly to Marthin De Beer, Senior Vice President, Cisco Video and Collaboration Group.

John Chambers, Chairman and CEO, Cisco, said the company’s strategy had always been driven by customer need and on capturing market transitions. “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 monetisation opportunities and service differentiation.”

Peled said that Cisco and NDS were helping drive the transition that would enable service providers and media companies to offer new revenue-generating video experiences. “NDS’s open software video platform and services are highly complementary to Cisco technology, and together we are uniquely positioned to enable service providers to deliver fresh and exciting multi-screen video services to their customers. A key component of NDS’s success has been our open software and services model, working with a wide range of set-top box manufacturers to enable greater choice for our customers; following this acquisition this strategy will continue and expand the choice of hardware solutions available to service providers worldwide.”

Dave Habiger, CEO, NDS, described the deal as “a transformational opportunity for not only NDS and Cisco, but also our service provider customers and their consumers. Together we make the connected vision a reality.”

Confirmation of the deal followed reports February 20 that Cisco was planning to dispose of its set-top box business to concentrate on cloud-based Videoscape solutions. The company swiftly confirmed its commitment to set-top boxes, describing such comments as “erroneous” and “unsourced”.

Corporate Communications head John Earnhardt drew attention to comments made earlier in the month by Cisco Chairman and CEO John Chambers. Chambers stated, in part: “In terms of set top boxes, we are very much committed to this marketplace. Our SP customers asked us to partner with them as they move from traditional set top boxes to IP set top boxes to the cloud, our Videoscape solution. Receptivity so far has been very, very good in terms of our strategy.”

The New York Post had reported Cisco was looking to sell its Scientific-Atlanta set-top box business six years after acquiring the company. The paper said Cisco, who paid close to $7 billion for the STB manufacturer in 2006, had put the company up for sale because margins in that business have come under pressure.

NDS was established in 1988 as an Israeli start-up company, and was acquired by News Corporation in 1992. In 2009, Permira and News Corporation announced a $3.6 billion arrangement for buying the public holding in NDS, turning it into a privately held company.Permira holds 51 per cent, and News Corporation approximately 49 per cent.

In December 2011, NDS filed with the SEC to raise up to $100 million in an initial public offering.

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