Oh, brother. Just when I thought Cisco Systems (NASDAQ:CSCO) had gotten it together, the company goes ahead and makes all the wrong decisions once again.
I've been telling you that Cisco needs to stand firm on the pricing of its acquisitions. Bending over to please one group of disgruntled and/or greedy shareholders could pave the way to tougher buyout negotiations in the future. A "final offer" doesn't feel all that final when the buyer has a history of negotiating new deal terms.
But that is exactly what Cisco is doing now. At $3.1 billion, give or take, the first offer for Norwegian video conferencing specialist Tandberg failed to impress a number of large Tandberg owners, so they dragged their feet in a way that reminds me of when Oracle (NASDAQ:ORCL) met BEA Systems. After a couple of weeks of hemming and hawing, Cisco raised the all-cash bid to $3.4 billion, which could come back and bite the company much harder than the extra $300 million on the table, further down the road.
Cisco clearly has the drive to buy its way into markets that fit together with its core networking expertise, like when it bought digital video outfit Scientific Atlanta or Web-conferencing and collaboration specialist WebEx. These were large deals: Scientific Atlanta cost Cisco a net of $5.1 billion, and WebEx went for $2.9 billion. But they were firm offers, and Cisco never had to raise its bids. That is a strong buyer showing a firm hand at negotiations.
And now, that strong history has been thrown into the shadow of a new attitude -- one where the buyout target can ask for more money and might expect to get it. All of Cisco's hard-shouldered posturing this time proved to be nothing more than a bad poker face.
Is Tandberg itself worth the extra money? Probably so. Video conferencing could very well become a big-time growth driver for Cisco for years to come, and with Tandberg in the house, there just isn't much credible competition out there. But given how acquisition-hungry Cisco is and has been for years, the very principle of sticking to the original deal might be worth more -- and now it's all down the drain.
I would understand if Cisco was in a bidding war against some other rich and hungry tech giant, like Hewlett-Packard (NYSE:HPQ), Google (NASDAQ:GOOG), or IBM (NYSE:IBM). But Cisco just lost a bidding war against itself, and I think the company will have a much tougher time landing reasonable deals from here on out. Will Cisco lose on the carousel what it made on the swings? I think so. Let me know how you feel in the comments below.
