Cisco Systems, Inc., NDS Group Holdings Limited - M&A Call - NasdaqGS:CSCO

NasdaqGS:CSCO

Karen Tillman made the following statements during the M&A call:

1. Introduction:

   • "Thank you, operator. Good morning, everyone, and greetings from the United Kingdom. Welcome to our conference call announcing Cisco's intent to acquire NDS, a leading provider of video software and content security solutions."

2. Role Introduction:

   • "This is Karen Tillman, Senior Director of Corporate Communications for Cisco. I am joined today by John Chambers, Chairman and CEO of Cisco; Ned Hooper, Cisco's Senior Vice President and Chief Strategy Officer; Abe Peled, Executive Chairman of NDS."

3. Press Release Information:

   • "A press release with information on today's announcement can be found on the website of both companies at www.cisco.com and www.nds.com."

4. Conference Call Replay Details:

   • "A replay of the conference call will be available from 10 a.m. Pacific Time, March 15, 2012, to 4:30 p.m. Pacific Time March 30, 2012."
   • "For callers in the United States, the replay number is 1 (800) 469-5424. For all other callers, the replay number is (203) 369-3287."
   • "The replay will also be available via webcast from Thursday, March 15, 2012, through April 13, 2012, on the Cisco Investor Relations website at http://investor.cisco.com."

5. Forward-Looking Statements Disclaimer:

   • "The matters that both companies will be discussing today include forward-looking statements and as such are subject to risks and uncertainties."
   • "These and other risks and uncertainties could cause actual results to differ from those contained in the forward-looking statements."

6. Unauthorized Recording Notice:

   • "Unauthorized recording of this conference call is not permitted."

7. Additional Conference Call Information:

   • "In addition to this investor call, at 9:30 a.m. Pacific Time today, John, Abe and Marthin De Beer, Cisco's Senior Vice President of the Video and Collaboration Group will host a joint conference call. You can find details at newsroom.cisco.com."

8. Closing Remarks:

   • "Great, thank you. Operator, we are ready to start taking questions."

   • "Great, thank you. Operator, we are ready to start taking questions."

   • "Great. Thank you all for joining us today. Again, if you need any additional information, please visit our website at investor.cisco.com. Thanks very much, and have a great day."

John T. Chambers made several statements during the M&A call. Here’s a detailed summary:

Opening Remarks

• Introduction: John thanked Karen Tillman for the introduction and welcomed everyone to the call, expressing excitement about discussing the acquisition of NDS by Cisco.

Strategic Significance of the Acquisition

• Acquisition Overview: John described the $5 billion acquisition of NDS as a significant step in accelerating Cisco's video business, which is one of Cisco's five foundational priorities.
• Market Positioning: He highlighted NDS's role as a leader in providing video software and content security solutions for the service provider market.
• Strategic Fit: John noted that the acquisition complements and accelerates Cisco's move into the highest-value and most profitable segment of the service provider video market, expanding the company’s global video footprint and relationship with new satellite broadcast customers.

Market Opportunities

• Service Provider Priorities: John listed the key priorities of service providers, including mobility, video (for entertainment and business-to-business), cloud, monetization of network loads, and speed of service creation and delivery.
• Alignment with Strategic Objectives: He explained how the acquisition aligns with Cisco's strategy to capture market transitions and enable service providers to drive mobile video solutions, leveraging the cloud for new monetization opportunities.

Transaction Details

• Financial Impact: John stated that the net impact of the transaction is expected to be accretive to earnings per share in the first full year on a non-GAAP basis, with NDS earning $252 million in net income on close to $1 billion in revenue in fiscal year 2011.
• Strategic Alignment: He emphasized the strategic alignment of the acquisition with Cisco's "build, buy, and partner" innovation framework and its disciplined acquisition criteria.

Customer Impact

• Videoscape Platform: John discussed the Videoscape platform, which enables pay-TV service providers to bring together content from various sources to create an optimal video experience for subscribers on any device.
• Market Traction: He mentioned the strong market traction of Videoscape, with 17 Tier 1 service providers testing, proving, and deploying its components.
• Commitment to Service Providers: John reiterated Cisco's commitment to its service provider customers and the opportunity to drive new revenue streams for them through Videoscape.

Future Direction

• Continued Evaluation of Opportunities: John indicated that Cisco will continue to evaluate other targets that meet its strategic, operational, and financial criteria.
• Impact on Customers and Solutions: He shifted to discussing the solutions and impact for customers, emphasizing the importance of video as the next voice and the most compelling way to engage with people and content.

Closing Remarks

• Transition Acceleration: John expressed excitement about the opportunity to transform the video experience and customers' delivery, stating that this is the right deal to pursue at this time.
• Future Opportunities: He concluded by mentioning the strong fundamentals of the deal and the opportunity to strengthen Cisco's portfolio through further acquisitions.

Additional Points

• Presentation and Replay Information: John provided details on the press release, replay options, and a joint conference call scheduled for 9:30 a.m. Pacific Time.

Throughout the call, John Chambers emphasized the strategic fit of the acquisition, the financial benefits, and the alignment with Cisco's long-term goals and customer needs.

Abraham Peled, the Former Chairman of the Board at NDS Group Holdings Limited, made the following remarks during the M&A call:

1. Introduction and Excitement About the Deal:

   • Expressed excitement about the day being significant for NDS employees and customers.
   • Praised the business NDS has built, serving over 125 million households worldwide.

2. Customer Examples:

   • Mentioned notable clients including Astro in Malaysia, Bharti Airtel in India, BSkyB in the UK, Canal Plus, Cox in the U.S., DIRECTV, Kabel Deutschland, Sichuan Cable, and UPC Liberty Global.

3. Market Growth:

   • Noted the growth of the pay-TV software solutions market, driven by declining hardware costs, increasing broadband connectivity, and the need for subscription-based models.
   • Cited Screen Digest data predicting a 12.1% annual compound growth rate in digital pay-TV households from 384 million to 606 million by 2014, with faster growth in emerging markets where NDS operates.

4. Success Factors:

   • Attributed NDS's success to innovation, technological leadership, and system integration services that allow service providers to differentiate their services in a competitive market.
   • Highlighted the company’s focus on open software platforms running on a wide range of hardware and set-top boxes from over 50 manufacturers.

5. Technological Assets:

   • Mentioned sophisticated software solutions, end-to-end capabilities, a proven security track record, award-winning user interface (Snowflake), and the ability to deliver complex systems.

6. Future Opportunities:

   • Expressed excitement about the opportunities created by the combination with Cisco.
   • Respected Cisco’s innovation, strong customer relationships, and track record of leading through major market transitions.
   • Believed in Cisco’s value proposition of cloud, network, and client architectures to enable service providers to deliver differentiated user experiences.

7. Employee Recognition:

   • Thanked NDS management and employees for their dedication and accomplishments over the years.
   • Acknowledged the opportunities ahead as a result of the team’s commitment and hard work.

8. Revenue Model:

   • Explained NDS’s model as a services model delivered through products, with a recurring revenue stream tied to the number of consumers enjoying content protected by NDS.
   • Described the relationship with service providers as a win-win model, with NDS's success linked to the success of its customers.

9. Response to Customer Inquiry:

   • Shared a conversation with a major customer about the benefits of the Cisco-NDS combination, emphasizing the seamless delivery of services across broadcast and broadband channels.
   • Mentioned the successful collaboration with Cisco Scientific-Atlanta and Cox, resulting in a leading residential gateway product in the U.S.

10. Revenue Growth:

    • Addressed questions about revenue growth, explaining that year-to-year comparisons suffered from smart card replacements and currency fluctuations.
    • Noted consistent organic growth and acceleration in revenue growth.
    • Highlighted growth in the U.S. cable market and rapid penetration in Latin America.

11. Strategic Alignment:

    • Confirmed that NDS would grow the business in excess of low double-digits with operational leverage.
    • Emphasized the exciting opportunities for pull-through in the current market and the expansion of services to the customer base outside the U.S.

12. Professional Services:

    • Viewed professional services as a leading spiel to sell the rest of NDS's products.
    • Expected professional services to grow slightly, balanced with the delivery of products generating recurring revenue and royalties.

Peled's remarks provided insights into NDS's business model, market position, and strategic fit with Cisco, as well as the potential benefits of the acquisition for both companies and their customers.

Edwin B Hooper, the Former Chief Strategy Officer and Senior Vice President of Corporate Development & Consumer Group at Cisco Systems, Inc., provided the following information during the M&A call:

• He expressed his consistent impression with the caliber of NDS talent, the strong cultural fit between Cisco and NDS, and the depth of NDS's technology innovation.

• He noted that both companies share a vision for next-generation video and content experiences and a commitment to service provider customers' success, while bringing different yet complementary strengths to the table.

• He covered additional details of the transaction, including the purchase price of approximately $5 billion for NDS, which includes NDS’s outstanding debt and retention-based incentives.

• He mentioned that Cisco will use its cash, cash equivalents, and investments to fund the cost of the acquisition.

• He stated that the transaction is expected to close in the second half of the 2012 calendar year, subject to regulatory and other approvals.

• He indicated that the net impact of the transaction to Cisco is expected to be accretive to EPS in the first full year on a non-GAAP basis.

• He explained that upon the close of the transaction, NDS's financial reporting will be reclassified to align with Cisco's accounting policies, and none of these changes will affect the bottom-line economics of the transaction but will impact the P&L presentation.

• He said that the valuation of the deal is generally in line with the EBITDA multiples paid when NDS was taken private in 2009 and is within the multiple ranges for comparable deals, including Cisco's previous acquisition of TANDBERG.

• He mentioned that upon the close of the acquisition, NDS's global operations and over 5,000 NDS employees will be integrated with Cisco Service Provider Video Technology Group under Jesper Andersen, part of Marthin De Beer's Video and Collaboration Group.

• He announced that Abe Peled will become the Chief Strategist for Cisco's Video and Collaboration Group and will be instrumental in leading Cisco's video transformation and guiding the successful integration and operations of the NDS business.

• He highlighted that NDS demonstrated strong financial performance under private ownership, continued to innovate, maintained its leadership position, and expanded its customer base.

• He emphasized that the integration of NDS's products will enable revenue synergies and operating leverage, and the complementary nature of NDS's products and services will help accelerate the Videoscape platform.

• He pointed out that a significant portion of NDS's software, services, and content protection business is recurring, with long-term contracts typically lasting around 5 years.

• He noted that NDS's strength with satellite providers complements Cisco's strength in cable MSOs and telcos, substantially broadening the customer base, and NDS's strong presence in emerging markets, accounting for 40% of revenue and growing, positions Cisco well for global growth.

• He expressed confidence in Cisco's ability to deliver positive results with the acquisition of NDS, citing a proven track record of integrating acquisitions and achieving or exceeding plans, particularly for larger transactions.

• He mentioned the breadth of Cisco's portfolio and its ability to bring it altogether in an integrated network architecture, which he considers unmatched.