Cisco Buy NDS for $5 Billion to Add Digital TV Software

Cisco Systems Inc. (CSCO), the largest maker of equipment for computer networks, agreed to buy NDS Group Ltd. in a deal valued at about $5 billion to add software used in next-generation video services.

The purchase price includes debt and retention-based incentives, San Jose, California-based Cisco said today. The boards of both companies have approved the transaction, which is subject to regulatory review and will be completed in the second half of 2012, it said.

Cisco Chief Executive Officer John Chambers is working to add more profitable products as part of a turnaround plan. The company had about $46.7 billion in cash and cash equivalents in the U.S. and overseas as of January and has pledged to be aggressive in technology acquisitions. NDS, which makes software for pay-TV channels used by British Sky Broadcasting Corp. and DirecTV (DTV), is co-owned by Rupert Murdoch’s News Corp. and London private-equity firm Permira Advisers LLP.

“Our strategy has always been driven by customer need and on capturing market transitions,” Chambers said in the statement. “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.”

Photographer: Denis Doyle/Bloomberg

John Chambers, chief executive officer of Cisco Systems Inc., gestures during a keynote event at the Mobile World Congress in Barcelona, Spain, on Tuesday, Feb. 28, 2012. The Mobile World Congress, operated by the GSMA, expects 60,000 visitors and 1400 companies to attend the four-day technology industry event which runs Feb. 27 through March 1. Close

John Chambers, chief executive officer of Cisco Systems Inc., gestures during a keynote... Read More

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Photographer: Denis Doyle/Bloomberg

John Chambers, chief executive officer of Cisco Systems Inc., gestures during a keynote event at the Mobile World Congress in Barcelona, Spain, on Tuesday, Feb. 28, 2012. The Mobile World Congress, operated by the GSMA, expects 60,000 visitors and 1400 companies to attend the four-day technology industry event which runs Feb. 27 through March 1.

NDS is Cisco’s biggest deal since it bought Scientific-Atlanta Inc. in 2006, according to data compiled by Bloomberg.

Cisco fell 1.4 percent to $19.91 at the close in New York. The stock has gained 10 percent this year.

Price Competition

News Corp. and Permira agreed to take NDS private in 2008 in a deal that gave New York-based News Corp. (NWSA) a 49 percent stake and Permira the remaining 51 percent. News Corp. had previously held 72 percent.

As part of the purchase, Cisco will get operations in India, China, Israel, the U.K. and France as well as about 5,000 NDS employees, who will join Cisco’s video technology business for service providers. The purchase price, compared to the earnings NDS makes before interest, taxes, depreciation and amortization, is in line with what News Corp. and Permira paid when they took the company private, Cisco said today.

NDS had about $1.04 billion in debt as of September 2011, according to a regulatory filing.

Chambers began a turnaround plan last year, when he cut jobs, eliminated businesses and refocused on more profitable products. The company, trying to reignite growth after market-share losses to rivals, became more competitive on price last quarter. NDS’s products are used to send interactive content to TV set-top boxes, digital video recorders and mobile phones.

Photographer: Daniel Acker/Bloomberg

A Cisco Systems network data switch in New York. Close

A Cisco Systems network data switch in New York.

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Photographer: Daniel Acker/Bloomberg

A Cisco Systems network data switch in New York.

Last month, Cisco reported fiscal second-quarter earnings and sales that beat estimates, defying concerns that delays in network upgrades by phone and cable companies would drag down revenue.

JPMorgan Chase & Co. (JPM) and Centerview Partners LLP advised Cisco on the transaction.

(Cisco hosted a call to discuss the deal today. To access a replay, dial +1-800-469-5424 in the U.S. and +1-203-369-3287 from elsewhere.)

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net

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