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Indecent proposal: Hedge fund makes 'unsolicited' bid for Riverbed

Elliott Associates hungrily eyes up WAN optimisation biz

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An unwanted bid to take over WAN optimiser Riverbed for $3.1bn has been mounted by hedge fund Elliott Associates.

Reg readers may be aware of Elliott from its activist, management-agitating attacks against incumbent management at Emulex, Compuware, Brocade and NetApp.

Elliott, run by billionaire Paul Singer, looks for companies whose shares undervalue their assets and invests. The fund then goes about shaking up boards and management to get them to increase share prices by share buybacks, increased dividends or outright company sales.

Its activities have helped bring about the sales of Blue Coat, BMC Software, and Novell.

Why is Riverbed in Elliott's sights? Well, first of all the activist investor already has a larger-than-usual stake in the firm: 10.5 per cent. Second, crucially: growth in the WAN optimisation market, into which it sells its Steelhead appliance, has slowed. The Whitewater cloud storage gateway business isn't growing as fast as it could, and the Granite product, used for remote office serving, is being positioned for use in a new location-independent computing push.

The company reported lower third quarter profit in October, $3.8m versus the $24.7m it grabbed a year ago, although revenue rose on an annual compare. Its business results had been affected by the US government spending slowdown and software-defined networking with commodity hardware is a threat to its business.

But Riverbed is not a distressed company - i.e. a loss-making one - unless its fourth quarter results, due on 30 January, tell a different story. However, its shares have been in relative limbo for a year, while spending on product development and acquisitions, like Opnet for $1bn, have risen. Elliott, naturally, thinks the spending would have been better directed at returning value to shareholders.

The WSJ saysElliott portfolio manager Jesse Cohn wrote to Riverbed's board, saying: "We are aware that numerous parties have expressed acquisition interest in Riverbed, and this [offer] guarantees that the company will secure a healthy premium for its stockholders while holding open the opportunity to obtain an even higher premium."

Elliott's bid seems designed to get Riverbed to shop itself to Cisco, Juniper or some other networking company. Its offer is $19/share but shares are trading at $19.53, up 9/4 per cent on the day, as investors gamble that there will be a higher bid. Before Elliott's offer, the shares were trading at a shade under $18.00 so the bid price didn't represent much of a premium at all.

Yet this is 26 per cent higher than the price Elliott paid for Riverbed stock when it revealed its interest in November last year.

Riverbed issued this statement:

Riverbed Technology ... has received an unsolicited proposal from Elliott Management Corporation to acquire all outstanding shares of Riverbed for $19.00 per share in cash. ... Riverbed’s Board will review the offer and communicate its views in due course. ... The Board will review the Elliott proposal thoroughly, taking into account the Company's current strategic plan and growth initiatives.

So now we watch and wait while a pushy Wall Street investor and an under-performing networking technology company go through the takeover dance moves. It looks as if Riverbed's status as an independent company is doomed. ®

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