Radvision needs a distribution network

Comment

The company cannot stand on its own feet and the Zisapels are looking for a major company with distribution channels.

About a year ago the share price of Radvision Ltd. (Nasdaq: RVSN; TASE: RVSN) began to gradually climb, reaching $12 in March. Although the video conference solutions developer had higher revenue and had showed a small profit in the second half of 2010, the rise stemmed from one main thing - the due diligence conducted by Hewlett Packard Co. (NYSE:HPQ), which was interested in buying Radvision.

In the end the acquisition never happened. There was too wide a gap to bridge between what HP was offering and what Radvision's controlling shareholders Zohar and Yehuda Zisapel were asking. HP were prepared to pay $12 per share at a company value of $225 million, while the Zisapel brothers were holding out for 50% above that.

It's possible that one of the reasons that the Zisapels were not prepared to compromise over the price was the circumstances of RadVision at that time. After Cisco had acquired RadVision's Norwegian competitor Tandberg in 2009, the Israeli company was hit hard because Cisco had traditionally been its largest customer and was responsible for 40% of revenue. Radvision's revenue was clearly set to fall substantially.

Consequently, Radvision took the strategic decision to enter the video conferencing end-user market, through acquiring Italian company Aethra. The purchase was completed in 2010, and in the second half of the year Radvision's revenue grew, profits climbed and the future looked rosey.

Then the first quarter of 2011 arrived, and shortly after a shareholders meeting in Tel Aviv, Radvision published a profit warning. The main reason for the profit warning was the earlier than expected fall in orders from Cisco. Later on in 2011, as Cisco's orders remained low, Radvision's true situation became clear. The company was not only failing to grow revenue and profits but there also appeared to be no way forward, as reflected by three consecutive profit warnings.

Even worse than that, in the last two quarters, Radvision burned up $8 million cash per quarter, and the company's cash reserves fell below the $100 million mark.

Losing Cisco as a customer was costing RadVision dear twice over: firstly because it had lost its largest customer, which was now using its rival's products; and secondly because Cisco had been its product distributor in the US, and now Radvision was forced to begin building from scratch its own US distribution network.

This second task turned out to be a particular challenge, and was one of the main reasons for RadVision's fall in revenue, and drop in US activities in 2011.

Now one year after HP decided not to acquire Radvision, the company is again up for sale, although the circumstances have been transformed with the video conferencing solution developer's share price down nearly 50% since the start of the year before the jump of the past 10 days.

In its present situation, it will be difficult for Radvision to stand on its own feet without assistance from a major company and its distribution channels. There remains the question of the price of the acquisition and the readiness of the Zisapels to compromise this time around.

Published by Globes, Israel business news - www.globes-online.com - on December 13, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

Shmulik Shelach, Ron Steinblatt and Tali Tsipori
 
 
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