Feb. 26 (Bloomberg) -- Ericsson AB, the world's largest maker of wireless network gear, made a hostile 9.8 billion- kronor ($1.4 billion) bid for Norway's Tandberg Television ASA, topping an offer by Arris Group Inc.

Ericsson, based in Stockholm, offered 106 Norwegian kroner in cash for each share of Lysaker-based Tandberg, the company said today. Atlanta-based Arris on Jan. 15 agreed to pay 96 kroner. Tandberg Television shares jumped as much as 14 percent to 114.25 kroner, indicating investors expect a higher bid.

Tandberg TV controls more than a quarter of the market for video-processing equipment that's used by the CNN cable network or phone company Swisscom AG for Internet broadcasting. Ericsson said it already owns 11.7 percent of the company, and investors holding a further 13 percent have committed to sell their stock.

``Tandberg TV will likely end up with Ericsson because it has more fire power and because Tandberg's existing clients will likely prefer Ericsson,'' said Michiel Plakman of Rotterdam- based Robeco Group, which manages over $74 billion in equities, including Ericsson shares. ``Carriers need to be able to offer new services so they can keep their larger clients happy.''

Shares of Tandberg TV rose 11.75 kroner, or 12 percent, to 112 kroner in Oslo. Ericsson shares rose 0.1 krona, or 0.4 percent, to 26 kronor in Stockholm. Arris shares plunged as much as $1.91, or 12 percent, to $13.38 in New York.

`Unsolicited'

Tandberg today called Ericsson's approach ``unsolicited'' and said it will review the offer before commenting. Company management on Jan. 15 backed Arris' bid. Ericsson said it needs more than 90 percent approval from Tandberg shareholders to succeed. Arris is reviewing the new offer and won't comment before the evaluation is completed, spokesman Jim Bauer said.

``This is a very friendly bid that offers a good solution for us as well as for Tandberg,'' Ericsson Chief Executive Officer Carl-Henric Svanberg said in an interview. ``I think the offer will be regarded as positive at Tandberg.''

Ericsson in December agreed to buy Redback Networks Inc. for $2.1 billion to add Web routers and expand its broadband networks as clients bundle phones, Internet and television into a single service, referred to as triple play. The purchase let Ericsson take on Cisco Systems Inc. in the market for routers.

Cisco, the world's largest maker of computer-networking equipment, last year completed its $5.2 billion purchase of Scientific-Atlanta Inc., adding the second-largest U.S. maker of set-top boxes for cable television.

Cash and Stock

Svanberg said he had considered buying the Norwegian company for some time, though he refrained from a bid before Ericsson had appointed a head for its newly created multimedia division. Arris' offer forced Ericsson's hand, Svanberg said.

The price Ericsson agreed to pay is about four times Tandberg Television's sales over the last four quarters. That compares with a price for Redback that's more than eight times the U.S. company's revenue in the last four quarters before Ericsson's bid in December.

Arris, a provider of broadband communication networks, is offering 80 kroner in cash and 16 kroner in stock for each Tandberg share. If combined, Arris would double its workforce to more than 1,600 employees and have almost $1 billion in sales.

Tandberg TV competes with Harmonic Inc. and Tut Systems Inc. Its products help compress media files to let clients push them through traditional networks that would otherwise not be able to accommodate them. About a quarter of Tandberg TV's sales now come from Internet-based television transmission systems, Svanberg said at the press meeting.

Triple Play

``Television over the Internet and triple play are the future,'' said Niklas Lund, a fund manager at Alandsbanken Asset Management in Helsinki, which oversees $1 billion of assets. ``Acquiring Tandberg TV would strengthen Ericsson's position in these areas.''

Swedish investment firm Industrivaerden AB today sold its 7.4 percent stake in Tandberg Television to Ericsson. Orkla ASA, a Norwegian company with businesses from metals to detergents, also sold its 3.4 percent holding. Svanberg declined to say if Ericsson is prepared to increase its offer.

Tandberg Television was created when Tandberg ASA was split up in 1979, and the company sold shares to the public in 1997. Companies under the Tandberg brand now include Tandberg Storage ASA and Tandberg Data ASA, which make data-storage products, as well as Tandberg ASA, which is the world's second-largest maker of videoconferencing equipment.

``There are other alternatives out there that could provide us with a good solution, but Tandberg is the most attractive one, that's why we made the offer,'' Svanberg said. He said he expects to close the transaction by the second quarter.

Remodeling Ericsson

Ericsson has remodeled along three business lines of multimedia, services and networks and has relied on purchases to strengthen those units. The company built up its fixed-network division with the 2005 purchase of Marconi Plc, and in December agreed to buy Redback. This month, Ericsson bought Entrisphere Inc., whose technology helps transmit digital videos.

Ericsson's industry has consolidated as competitors combine to gain scale and cut costs. Alcatel SA of France last year combined with Lucent Technologies Inc. to form the world's biggest maker of communications equipment, and Siemens AG is combining its networking division with that of Nokia Oyj.

The Swedish company today said the Tandberg purchase will add to earnings per share this year. Ericsson has forecast ``mid single-digit'' growth for the industry as a whole for 2007. That's less than a previous prediction of ``moderate'' growth, which implies an expansion of between 5 percent and 10 percent.

SEB Enskilda is advising Ericsson on the purchase.

To contact the reporter on this story: Janina Pfalzer in Stockholm at jpfalzer@bloomberg.net

Last Updated: February 26, 2007 11:34 EST