Courtesy of Bloomberg...
(Adds analyst’s comment in ninth paragraph.)
By Serena Saitto
April 14 (Bloomberg) -- Polycom Inc., the maker of videoconferencing systems, is working with Morgan Stanley to study strategic options, including a possible sale, according to three people familiar with the situation.
Polycom is preparing for increased competition after rival Tandberg ASA was snapped up by Cisco Systems Inc. and as free Internet videoconferencing services such as those offered by Skype Technologies SA and Google Inc. gain popularity, said another person close to the situation, who declined to be identified because the company’s plans aren’t public.
A buyer would be able to challenge Cisco in a market that may more than double by 2014 as executives invest in equipment that lets them cut travel expenses. Based in Pleasanton, California, Polycom sells conferencing gear ranging from cameras attached to personal computers to large-sized screens.
“Polycom is the only significant independent provider of videoconferencing systems right now,” Marc Beattie, managing partner at research firm Wainhouse Research LLC, said in an interview. “They have some terrific audio and video technology that a larger organization would definitely want.”
Cisco, the biggest maker of networking gear, agreed to buy Tandberg for $3.2 billion last year to add less-expensive products that complement its larger videoconferencing systems. The deal hasn’t yet closed, though Cisco said it has the needed regulatory approvals.
Alyson Barnes, a Morgan Stanley spokeswoman, and Kevin Young, a Polycom spokesman, declined to comment.
Gores Talks
Polycom was in talks with Gores Group LLC last month and failed to reach an agreement because the Los Angeles-based private-equity fund wanted to merge it with its portfolio company Siemens Enterprise Communications, while Polycom wanted a cash deal, the people said. *** Why? who would this benefit?
Frank Stefanik, a spokesman for Gores, didn’t return a call seeking comment. The Financial Times reported Gores had approached Polycom last month.
“There’s a buyer for Polycom if the price is right,” Samuel Wilson, a San Francisco-based analyst with JMP Securities LLC, said in an interview. “The problem may be that Polycom wants more money than buyers are willing to spend -- and that limits the universe of buyers.” He rates Polycom’s shares “market perform” and doesn’t own them. *** Aint this the truth! I've heard unofficial rumors about 4-6 offers to buy Polycom over the last several years. Too much emotion or bad information has slipped Polycom up from really making this happen!
Polycom jumped $1.76, or 5.8 percent, to $32.31 at 4 p.m. New York time in Nasdaq Stock Market trading, the biggest gain in almost a month. The shares have added 29 percent this year.
Slipping Sales
Polycom’s sales dropped 9.6 percent to $967 million last year after gaining for the previous five years. Its profit declined 34 percent to $49.9 million.
To help reverse that trend, Polycom has signed strategic alliances with Hewlett-Packard Co., Siemens Enterprise and Juniper Networks Inc. this year to jointly sell its products. Juniper is the No. 2 maker of networking gear, trailing Cisco.
“Polycom is experiencing tremendous opportunity in the evolving landscape of the visual communications market,” Polycom Chief Executive Officer Robert Hagerty said in an e- mailed statement, without commenting on a possible sale.
“There is significant momentum for the Polycom Open Collaboration Network both in terms of partner activity with leaders like Microsoft, H-P, Avaya, Siemens, IBM, Juniper and BroadSoft, as well as with customer acceptance. Our go-to-market approach is aligned with this strategy and we are capitalizing on the opportunities,” he said.
Premium Prices
Forty-one acquisitions in the U.S. networking product sector have been announced in the past 12 months. The average premium was 38 percent, including net debt, according to Bloomberg data. That average, along with Polycom’s enterprise value of $2.1 billion before today, suggests that Polycom may fetch $3 billion.
The global videoconferencing market accounted for $1.2 billion in revenue in 2009, according to Duxbury, Massachusetts- based Wainhouse, which focuses on collaboration and videoconferencing. That market will expand to $3 billion by 2014, according to Wainhouse.
Tandberg had 43 percent of the market last year, followed by Polycom’s 34 percent, Beattie said. Sony Corp. was third with 4 percent.
Last month, the FT reported that another private-equity firm, Apax Partners LP, had been trying to strike an agreement to buy Polycom. The deal, which could have valued the company at more than $3 billion, hit a snag over price, according to the newspaper. Apax spokesman Todd Fogarty declined to comment.
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