Cisco is set to acquire NDS Group, a provider of video software and content security systems for service providers and media companies, for $5 billion (£3.2 billion).
NDS is the most significant acquisition for Cisco since it bought videoconferencing leader Tandberg in 2009. It is indicative of the company's intent to lead the service provider video market, where its Videoscape initiative and Scientific-Atlanta set top boxes are targeted.
"The acquisition would make Cisco the largest provider of SP video solutions," notes Oppenheimer & Co. analyst Ittai Kidron in a bulletin on the acquisition.
It also furthers Cisco's intent to build up its software and services expertise and revenue base, areas the company has said it will place more emphasis on.
NDS software and services are designed to create pay TV video offerings for service providers that enable subscribers to view, search and navigate digital content on any device. Its products include set-top/DVR software, program guide, software, digital-content software, and video headend systems, and customers include Cox and DirecTV, among many others.
Cisco said NDS will complement and accelerate the delivery of its cloud-based Videoscape TV offerings, which is designed to enable service providers and media companies to deliver entertainment content.
"Our strategy has always been driven by customer need and on capturing market transitions," said Cisco CEO John Chambers, in a statement. "Our acquisition of NDS fits squarely into this strategy, enabling content and service providers to deliver new video solutions that leverage the cloud and drive new monetisation opportunities and service differentiation."
Acquiring NDS will also expand Cisco's reach into emerging markets, such as China and India, where NDS has an established customer footprint, the company says.
A "significant portion" of NDS's software, services and content protection business is recurring, with long-term contracts, typically with an average duration of approximately five years, Cisco says.
The acquisition has been approved by the boards of directors of both companies.
The acquisition is expected to close during the second half of calendar year 2012, subject to customary closing conditions, including regulatory review in the United States and elsewhere. Prior to the close, Cisco and NDS will continue to operate as separate companies.
Upon closing, NDS's operations, including sites in the United Kingdom, Israel, France, India and China, and 5,000 employees will join the Cisco Service Provider Video Technology Group, led by Senior Vice President and General Manager Jesper Andersen. NDS Executive Chairman Abe Peled will be named senior vice president and chief strategist for Cisco's Video & Collaboration Group, of which SPVTG is a part.
Peled will report to Marthin De Beer, senior vice president, Cisco Video and Collaboration Group.