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Cisco to buy video-software firm NDS for $5 billion

By Dawn C. Chmielewski, Los Angeles Times –

LOS ANGELES — Cisco Systems Inc. plans to acquire video-software firm NDS Group Ltd. for about $5 billion in a cash-and-debt deal that would advance the computer networking giant’s move into next-generation home entertainment.

NDS of London makes the software used by cable and satellite companies to deliver video securely to television set-top boxes and other devices. Its customers include DirecTV, China Central Television and British Sky Broadcasting, the largest pay television operator in Britain. News Corp., which owns 39 percent of BskyB, also has a 49 percent stake in NDS.

Cisco said NDS’ software would complement its own technology for delivering entertainment in the home.

“Our strategy has always been driven by customer need and on capturing market transitions,” John Chambers, Cisco’s chairman and chief executive, said in a statement. “Our acquisition of NDS fits squarely into this strategy.”

Cisco, a San Jose company traditionally associated with routers and other network hardware, migrated to home entertainment in 2006 with its $7 billion acquisition of TV set-top box maker Scientific Atlanta. The company grabbed headlines last year as it signaled its move to Internet TV.

At the Consumer Electronics Show in Las Vegas in January 2011, a standing-room-only crowd packed into Cisco’s demonstration of technology that would bring digital TV, online content and social media into consumers’ living rooms.

Analysts said the NDS acquisition would help Cisco successfully navigate the next revolution in home entertainment: cloud-based services in which digital copies of movies and TV shows can be accessed on Internet-connected TVs and portable devices such as tablets and smartphones. In this connected world, TV set-top boxes are increasingly out of place.

“Many folks are going to buy a smart TV … and there’s no need for another box,” said Shaw Wu, a senior technology analyst at Sterne Agee.

Cisco shares fell 28 cents to $19.91.

NDS is developing software that would enable cable companies to continue delivering pay-TV programming to any screen in the home — including smartphones and tablets.

“Over time, you’re going to want your television content on your iPhone, on your tablet, on your TV at home,” said Alkesh Shah, managing director responsible for networking equipment at Evercore Partners. “This combination is not the final step to that, but provides the building blocks to get to that solution.”

Under terms of the deal, Cisco said it would pay approximately $5 billion, including the assumption of about $1 billion in debt. The acquisition, expected to close in the second half of 2012, has been approved by the boards of directors of both companies but is subject to regulatory review.

News Corp. and NDS majority owner Permira Advisers took the pay-television technology company private in 2008 in a transaction valued at $3.7 billion.

The media conglomerate and private equity firm issued a combined statement Thursday confirming their agreement to sell NDS. Bernstein Research analyst Todd Juenger wrote in an investor note Thursday that the sale is a positive development for News Corp., which would realize a pretax gain of about $1.5 billion from the sale. He noted that “it makes sense to sell its equity stake completely,” because it is an asset that’s not connected to the company’s media business, which spans newspapers, broadcast and cable television assets and a film studio.

As part of its purchase of NDS, Cisco would acquire operations in Britain, Israel, France, India and China. The company’s approximately 5,000 employees will join Cisco’s Service Provider Video Technology Group.

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