Jan. 15 (Bloomberg) -- Arris Group Inc., a U.S. provider of broadband communication networks, agreed to buy Norway's Tandberg Television ASA for $1.2 billion to tap into the growing market for Internet TV. Tandberg shares surged 15 percent.

Arris offered 96 kroner ($14.93) in cash and stock for each Tandberg share, 12 percent more than the Jan. 12 closing price, the companies said today in a statement. Tandberg is the world's largest maker of video-encoding systems used for Internet and high-definition TV, as well as on-demand video and advertising.

The purchase gives Atlanta-based Arris more than 25 percent of the global market for video processing and comes as phone companies upgrade their networks to beam digital TV programs into homes. Oslo-based Tandberg, whose customers range from Germany's Deutsche Telekom AG to Hong Kong's PCCW Ltd., almost doubled its revenue in the four years through 2005. Tandberg's direct competitors include Harmonic Inc. and Tut Systems Inc.

``Tandberg TV is very complementary if you look at `triple- play' customers, those that want video, data and telephony solutions over the same channel,'' said Ole Anton Gulsvik, an analyst at Handelsbanken Capital Markets in Oslo. ``Arris delivers the telephony and data part, whilst Tandberg TV delivers the video part. They make a good match.''

Tandberg shares rose 13 kroner to 99 kroner in Oslo, a five-month high, indicating investors anticipate a higher bid. Before today, the shares had lost 11 percent in a year. Arris shares fell 1.4 percent to $13.10 in the U.S. on Jan. 12. U.S. markets are closed today.

`Global Leader'

Tandberg Chief Financial Officer Fraser Park didn't return a phone call seeking comments. Arris will hold a conference call at 8:30 a.m. in New York tomorrow, according to Gay Bell, who handles public relations for Tandberg.

``By bringing together these two market leaders we are able to expand on our vision to be the global leader in the provision of digital IP infrastructure and to enable voice, video and data to be delivered over integrated broadband networks from the content provider to the head-end to the home,'' Arris Chief Executive Officer Bob Stanzione said in the statement.

Cisco Systems Inc., 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.

``Arris has never had a position in the video market, and it is difficult to develop from scratch, as the existing players have been around for some time,'' Gulsvik said. Tandberg Television ``is the largest in the sector with a 25 percent market share and is known to have very advanced technology.''

Board Backing

Arris is offering 80 kroner in cash and 16 kroner in stock for each Tandberg share. The combined company will employ more than 1,600 workers and had almost $1 billion in 2005 sales.

``The offer premium compared to the stock price and our expectations for future earnings wasn't all that great, so we'll just have to wait and see,'' said Kristian Falnes, a fund manager at Stavanger Fondsforvaltning, which has 975,000 Tandberg shares.

Tandberg said today its board ``unanimously'' recommends shareholders accept the offer, whose cash portion can be increased at Arris's discretion. The transaction, subject to regulatory approvals, is expected to be completed in the second quarter, Tandberg said.

In early 2005, Tandberg Television bought Atlanta-based N2 Broadband Inc. to expand in the U.S. and in February last year it agreed to buy Sunnyvale, California-based SkyStream Networks Inc.

Tandberg in October reported its third-quarter profit rose 13 percent to $14.3 million from a year earlier as sales rose 9 percent to $80.7 million. The company increased sales every year except one in the past decade, according to data compiled by Bloomberg.

To contact the reporter on this story: Kenneth Wong in Berlin at kwong11@bloomberg.net.

Last Updated: January 15, 2007 11:47 EST