“Is a 38.3% premium fair for Tandberg shareholders? Absolutely. Does it lock in a superior return for Tandberg shareholders and protect them from future market risk? Yes. Does it also fairly reflect risks borne exclusively by Cisco shareholders? Yes.”

– Cisco Chief Strategy Officer Ned Hooper

Cisco strongly believed that its first bid for videoconferencing equipment manufacturer Tandberg was a very good price for the company’s shareholders. The company felt as well that “no acquisition should be pursued or completed if it runs counter to the broader principles of prudence and financial fairness.” Cisco really did not want to sweeten its initial offer for Tandberg–a 38.3 percent premium over the company’s closing share price on the day before news of a possible acquisition broke.

But it did so anyway.

This morning, Cisco (CSCO) raised its bid for Tandberg to 19 billion Norwegian kroner ($3.4 billion), up from $3.0 billion. “The New Offer represents the…final price for this transaction,” Cisco said in a statement. “If the offeror does not achieve the desired level of acceptances, the offeror will withdraw the new offer and evaluate alternative ways to expand Cisco’s activities in the video communications market.”

Remarking today on speculation that Cisco (CSCO) would do just that, Ned Hooper, the company’s chief strategy officer, stressed that Cisco “will always act with fiscal prudence” as it pursues Tandberg. “We strongly believe our offer is a very good price for Tandberg shareholders,” Hooper wrote, adding that the time is right for the two companies to come together.

“However, no acquisition should be pursued or completed if it runs counter to the broader principles of prudence and financial fairness,” Hooper cautioned. “Given all the speculative ‘noise’ last week,” he added, “I wanted to take the time to reiterate these points because it is important to me, and to Cisco, that all of our stakeholders understand our position as we near the end of the offer period.”

Now Hooper didn’t come right out and say it, but his message here is pretty clear: Cisco believes the 38.3 percent premium it has offered to pay for Tandberg is a fair one and is not particularly interested in raising it just to please some ornery shareholders.

And time is running out. Note that Hooper concludes his missive by explicitly pointing out that the end of the offer period is approaching.

Sources tell Bloomberg that Cisco (CSCO) has little intention of meeting the demands of a group of investors who would like it to reach a bit deeper into its wallet before they hand over their 24 percent stake in Tandberg, the world’s second largest manufacturer of videoconferencing kit. Cisco would rather walk away than sweeten a bid that represents a 38.3 percent premium on Tandberg’s closing share price on the day before news of a possible acquisition broke.

Or that’s what Cisco wants them to think, anyway. Because scrapping what is a pretty strategic deal for the company would be silly at this point given Cisco’s huge cash reserves. Rumors that it would “strongly consider walking away” from Tandberg are likely more gamesmanship than anything else.

“I think it’s quite unlikely that they’ll drop their offer, everything points to them buying Tandberg,” Arctic Securities analyst Martin Hoff told Bloomberg. “It’s probably smart of them to send some signals to scare the shareholders into accepting the offer.”

Why? As research house Jefferies & Co. explains in a research note to clients today, if Twitter hasn’t yet managed to transform its popularity into significant revenue, how will Microsoft (MSFT) or Google (GOOG)?

“While we believe Microsoft pulled off a little bit of a media/PR coup by announcing the Twitter deal and forcing Google to rush into a similar deal, we do not believe Microsoft will be able to capitalize on its first mover advantage in the short run since neither search engines nor Twitter have figured out how to monetize the data streams from Twitters (affectionately known as Tweets),” Jefferies analysts wrote.

“We believe that users focused on real-time data would be less tolerant to advertising,” the research note adds. “That said, we can see new business models emerging down the line where the realtime tweets blended with local information (traffic conditions, flight arrivals, etc.) could be more easily monetized and where ‘premium’ tweets from celebrities could be included for a premium subscription. For now, the real-time data integration would mean more refreshes from the users to get up to the minute updates, which should translate into higher query volume, all else equal.”
 

That works out to $24 per share in cash for iPCS. This is a 34 percent premium over the company’s closing price of $17.88 per share on Friday, but perhaps a small price to pay for putting an end to the two iPCS lawsuits–one over Sprint’s acquisition of Virgin Mobile, the other over its investment in Wimax operator Clearwire.

As a result of the iPCS deal, Sprint (S) will no longer be required to divest its iDen network in certain iPCS (IPCS) territories, though iPCS had won a court ruling requiring Sprint to do so. Now, Sprint will not only keep those assets, it can peddle their services to some 700,000 iPCS customers in a territory that covers 81 markets in seven states.

Below, the official announcement:

Sprint Nextel to Acquire Wireless Affiliate iPCS, Inc.

More than 700,000 PCS Wireless Users and 270,000 Wholesale Customers to Become Sprint Direct Subscribers
Extends Company’s Direct Service Territory to an Additional 12.6 Million People
Sprint Ends Plan to Divest iDEN Network Assets in Certain Midwestern States Pending Transaction Close
OVERLAND PARK, Kan. & SCHAUMBURG, Ill.–(BUSINESS WIRE)–Oct. 19, 2009– Sprint Nextel Corp. (NYSE: S) and iPCS, Inc. (NASDAQ: IPCS) today announced an agreement for Sprint Nextel to acquire iPCS for approximately $831 million, including the assumption of $405 million of net debt. This transaction value represents 6.4x projected 2010 Adjusted Earnings Before Income, Taxes, and Depreciation (“Adjusted EBITDA”*). Sprint expects to achieve approximately $30 million of synergies annually in the transaction and expects the transaction to be free cash flow accretive to Sprint in 2010.

Under the terms of the agreement, Sprint Nextel will commence a cash tender offer to acquire all of iPCS’ outstanding common shares for $24.00 per share. This price per share represents a 34 percent premium to iPCS’ closing stock price as of October 16, 2009. The agreement also requires a minimum of a majority of the shares outstanding (on a fully-diluted basis) to be tendered in the offer. Following completion of the tender offer, any remaining shares of iPCS will be acquired in a cash merger at the same price per share. Shareholders with approximately 9.5 percent of the outstanding common shares of iPCS have already agreed to tender their shares pursuant to the tender offer and to vote their shares in favor of the merger.

The acquisition is subject to customary regulatory approvals and other customary closing conditions, and is expected to be completed either late in the fourth quarter of 2009 or early 2010. As part of the agreement, Sprint Nextel and iPCS will seek an immediate stay of all pending litigation between the parties with a final resolution to become effective upon closing of the acquisition.

As a result, Sprint will no longer be required to divest its iDEN network in certain iPCS territories and will terminate its previously announced divestiture process pending closing of the transaction.

iPCS’s services are sold under the Sprint brand name and in Sprint-branded stores. Because of the nearly seamless marketing and sales relationship between Sprint and iPCS, customers should not experience any change in their service as a result of this transaction.

“Acquiring iPCS brings added value to Sprint by expanding our direct customer base, growing our direct coverage area and simplifying our business operations,” said Dan Hesse, CEO of Sprint Nextel. “Customers in iPCS territory will see a seamless transition and continue to enjoy a superb customer experience.”

“We are very pleased to have reached this agreement with Sprint Nextel. Given the increasingly competitive landscape, we believe this is an opportune time to provide our shareholders with a liquidity event at a very attractive price. iPCS shareholders will receive a significant and immediate premium for their shares and our customers will continue to receive the same excellent service from the same dedicated people who provide that service today,” said Timothy M. Yager, president and CEO of iPCS. “We look forward to working with the Sprint Nextel team to ensure a smooth completion of the transaction and transition in the coming months.”

Earlier this year, Cisco (CSCO) acquired Pure Digital, developer of the Flip video camera, for $590 million. Two weeks ago, the company spent $3 billion on videoconferencing system maker Tandberg. And now it’s purchasing wireless infrastructure outfit Starent Networks (STAR) for $2.9 billion, or $35 a share. That’s a 21 percent premium over Starent’s closing price on Monday of $29.03, but it’s likely money well spent for Cisco.

Starent makes hardware and software to support wireless multimedia services, an obvious sweet spot in the data services market right now. Indeed, Cisco expects global mobile data traffic to more than double every year through 2013. Which makes Starent a pretty good growth bet, from on acquisition standpoint.

Cisco (CSCO) will pay nearly $3 billion in cash for the Norwegian videoconference company, which it hopes will bolster its position in videoconferencing. The offer values Tandberg at 11 percent more than its closing price in Oslo trading yesterday and at about 23 times 2010 earnings. But the company’s lower-end TelePresence systems and specialized software for managing teleconferences will do much to help Cisco dominate the $34 billion collaboration market.

It’s worth noting that earlier this year, Gartner (IT) forecast that video telepresence could replace 2.1 million business travel flights a year by 2012, diverting $3.5 billion annually from the airline industry.

“This fits very well with Cisco,” Robeco NV’s Michiel Plakman told Bloomberg. “They will immediately become the most important player in the market and aren’t paying a ridiculous premium, so this is positive.”

Cisco’s tender offer has the recommendation of the Tandberg board and is expected to close in the first half of next year.

“This significantly expands Dell’s enterprise-solutions capabilities and makes Perot Systems’ strengths available to even more customers around the world,” Dell CEO Michael Dell said in a statement. “There will be efficiencies from combining the companies, but the acquisition makes such great sense because of the obvious ways our businesses complement each other.”

The deal is expected to close some time in January and when it does, Perot will become Dell’s services unit.

An interesting move. While there had been speculation that Dell was looking to acquire a handset company like Palm (PALM), it seems Dell was far more interested in boosting its enterprise business by acquiring an outsourcer like Perot.

Apparently, investors aren’t too keen on the deal. Why? A number of reasons, according to Needham & Company analyst Mark May. “While the details of the deal can confuse the risks and benefits to Yahoo!, this deal ultimately means that Yahoo! is outsourcing search to Microsoft,” May told Digital Daily. “If you you’re bullish on search, and on the power of having combined strength in both search and display, I think you’d have to view this deal as negative for Yahoo! and positive for Microsoft.” May noted that there are a number of reasons for Yahoo investors to look askance at this deal. Among them:

• There’s no upfront payment.
• The deal requires regulatory approval and isn’t expected to close until 2010.
• The companies don’t expect to see the full benefits of the deal until 24 months after regulatory approval.
• While the companies claim Yahoo “will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers,” most of the value is and will be derived via the self-service channel–which Microsoft will now control.
• The deal could put Yahoo!’s affiliate/syndicated search business at risk.
• The deal’s 10-year length may put Yahoo at Microsoft’s mercy given that there’s only one other supplier–Google (GOOG).

Complete Coverage

• WWGD: What Will Google Do, Now That There Is Finally a MicroHoo?
• Liveblogging the Yahoo-Microsoft Search Deal Conference Call: The Carol and Steve Show Debuts!
• Yahoo Investors on Microsoft Deal: Do Not Want
• Yahoo CEO Carol Bartz’s Letter About the YaSoft Deal
• MicroHoo Deal Finally Official in a 10-Year Landmark Partnership (Plus the Full Press Release)
• Yahoo To Get 110 Percent of Search Revenue in First Two Years of Deal With Microsoft
• Before Yahoo-Microsoft Deal Terms Are Unveiled, Let’s Go to the Videotape From the Last One
• Microsoft-Yahoo Deal Struck–Will Be Announced Within Next 24 Hours

According to new stats from NPD Group, Apple now claims 91 percent of the U.S. retail market for personal computers costing more than $1,000. Nine out of 10 dollars spent on such machines in June went to Cupertino.

Now, granted, Cupertino only sells three Macs priced below $1,000 (the 13-inch MacBook and both versions of the Mac Mini), and Apple’s (AAPL) rivals’ offerings typically price out in the $690 -to-$703 range. Still, that 91 percent metric is impressive.

As Joe Wilcox over at Betanews puts it, “A (higher pricing) doesn’t necessarily lead to B (greater sales). All major Windows OEMs sell PCs in the premium category, too. Apple’s charging more isn’t necessarily recipe for people paying more for Macs, or their capturing big revenue share.”

That said, as NPD analyst Stephen Baker points out, Windows product average selling prices have been falling pretty rapidly over time, especially at retail, so it was inevitable that Apple’s share of the high-end market would rise, since the company hasn’t really altered its pricing philosophy.

Which is exactly what Data Domain did.

One consolation: NetApp (NTAP) may have failed as a suitor, but it received a $57 million breakup fee from Data Domain (DDUP) as a result of the termination of the agreement.

Still, it’s a tough blow for NetApp (NTAP), which will now focus on “existing growth opportunities” instead of ill-starred bidding wars with rivals.

Said Dan Warmenhoven, NetApp’s chairman and CEO: “While NetApp’s acquisition of Data Domain would have produced benefits for customers and employees and complemented NetApp’s existing growth trajectory, we remain highly confident in our already compelling strategic plan, market opportunities, and competitive strengths.”

“NetApp applies a disciplined approach to acquisitions, one focused intently on creating long-term value for our stockholders.” Warmerhoven added. “We therefore cannot justify engaging in an increasingly expensive and dilutive bidding war that would diminish the deal’s strategic and financial benefits. NetApp has established leadership positions in virtualized infrastructure, storage efficiency, and unified storage, even in these difficult economic times, by helping customers meet their business objectives with less physical storage while reducing costs. That commitment will not change. We look forward to continuing to build on our foundation of innovation and customer service, and to continuing to execute our successful growth strategy.”

[Image credit: despair.com]