The roughly $4 billion purchase would be Cisco's biggest since it paid $3.4 billion for Norwegian teleconferencing company Tandberg in April 2010.
The networking gear maker has been working to turn its business around. It missed the early stages of the economic recovery and lost out to competitors when orders began to rebound.
Cisco said Thursday that the NDS purchase will speed up the delivery of its Videoscape entertainment platform and help it grow in emerging markets such as China and India, where NDS already does business. Videoscape is a service that lets customers watch video on mobile gadgets and laptops along with their TVs.
Cisco is putting a $5 billion price tag on the planned acquisition. That number includes debt. NDS carried about $1 billion in debt at the end of 2011, the latest available figure from its regulatory filings.
San Jose, Calif.-based Cisco has narrowed its focus in recent years by culling divisions and cutting costs through layoffs. It shuttered its consumer-oriented Flip video camera business last year, but video offerings for businesses have remained a big part of its focus. It acquired Scientific-Atlanta, a maker of TV set-top boxes, in 2006 for $7.1 billion and online conference provider WebEx a year later for $3 billion.
Brian Marshall, an analyst with ISI Group, said the deal makes sense for Cisco as it focuses on video offerings for service providers. NDS, which competes with Cisco, counts pay-TV operators such as DirecTV, Vodafone, Cox and BSkyB among its customers.
NDS, based in the United Kingdom, is jointly owned by News Corp. and private equity firm Permira. Its software helps cable and satellite TV companies deliver content to subscribers' digital video recorders, tablets, smart phones and other devices. It had filed documents as part of a planned initial public offering before agreeing to the deal with Cisco.
Cisco is acquiring NDS' sites in Britain, Israel, France, India and China and is absorbing its 5,000 employees. The boards of both companies have approved the deal. The deal is expected to close in the second half of this year.
Marshall said that while the acquisition is a "good use of offshore cash" for Cisco, the company is paying a lot. He estimates that Cisco is paying about 25 times NDS's earnings, while Cisco's stock trades at about 10 times its earnings.
BGC Financial analyst Colin Gillis said video is a big priority for Cisco. While the company is not moving away from networking gear, growth in that area has slowed and is now in the single-digits, he said.
So, the company needs to find the next high-growth area, and that would be video, he added.
Cisco stock fell 12 cents, or less than 1 per cent, to $19.91 in trading Thursday after trading as high as $20.20 earlier in the session. That was near its 52-week high of $20.49 reached about a month ago.
AP Business Writer Bree Fowler contributed to this story.