Under the terms of the agreement, Cisco will pay up to $44.5 million for the set-top box business of DVN. Of this amount, approximately $17.5 million will be paid upfront, with an additional maximum amount of $27 million to be paid over four years based on the achievement of specific sales milestones. The acquisition is expected to close in the first half of calendar year 2010 subject to standard closing conditions, DVN shareholder approval and regulatory approvals.
In addition to the acquisition, Cisco has entered into a go-to-market alliance with the remainder of the DVN organization — which will continue to be led by current DVN CEO Terry Lui — in order to utilize the company’s middleware and advanced applications as well as integration and support services. The alliance will provide joint customers with unparalleled end-to-end capabilities through the evolution from basic digital broadcast to advanced interactive services.
"Cisco and DVN have similar cultures that emphasize video innovation and a shared vision to enable multi-media connected homes across China," said Ken Klaer, vice president and general manager, International Cable Business Unit at Cisco. "With this acquisition, we will offer customers the powerful combination of DVN’s products with the Cisco IP Next-Generation Network (IP NGN) platform, and Cisco will be well positioned to engage in the largest digital transformation opportunity in the world today."
The Chinese cable market is currently the largest in the world with 160 million subscribers and is predicted to grow to as many as 200 million over the next three to five years. Currently, only about one-third of the market has converted to digital cable. With the Chinese government mandating full digitization by 2015, this represents an important long-term opportunity for Cisco.
"Cisco’s global technology leadership and breadth of services combined with DVN’s market-leading solutions and talented employee base will ensure that Chinese consumers continue to receive superior digital services today and are provided with world-class advanced technologies moving forward," said DVN CEO Terry Lui. "Cisco has demonstrated a strong commitment to the Chinese market, and I look forward to working with them as part of our ongoing alliance."
Between the signing of the agreement and the close of the acquisition, Cisco and DVN’s set-top box businesses will continue to operate as separate companies. Upon completion of the transaction, the DVN set-top box business will become a part of the International Cable Business Unit within the Service Provider Video Technology Group (SPVTG) at Cisco led by Klaer. Under the terms of the agreement, the two companies expect to work together with the aim of providing uninterrupted service to set-top box customers and to prepare for an orderly transfer of the business.
The DVN business will run end-to-end from within China — from design, sourcing and logistics through to marketing, sales and service. This is an important milestone for Cisco, not only in China, but for a broader strategy toward competing in emerging markets with locally designed and produced solutions.
The investment is part of Cisco’s ongoing long-term commitment to China and its belief in cultivating local innovation and talent. In April of this year Cisco introduced a "cultivated innovation" model aimed at boosting local innovation through capital, technology, process expertise, incubation resources and leadership investments. [November 4, 2009]
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