The Deal: Elliott Management Bids $3B For Riverbed

NEW YORK (The Deal)--With a $3 billion buyout offer that Paul Singer's Elliott Management announced on Wednesday, Riverbed Technology (RVBD) would join the ranks of Dell, BMC Software and Websense as another tech group that has gone private to navigate changes to the business.

The question is how receptive chairman and CEO, co-founder Jerry Kennelly, and the rest of the board will be to Elliott. When the hedge fund first took a stake in November, Riverbed adopted a shareholder rights plan.

Elliott's $19 per share bid represents a 26% premium to Riverbed's stock price before the hedge fund made a regulatory filing on Nov. 8, disclosing its position.

Shares of Riverbed raced past Elliott's buyout offer on Wednesday, gaining $1.68, or 9.41% to close at $19.53.

The proposal includes a 45-day "go-shop" window that would allow the tech group to seek out higher bids. Other technology companies may be hard-pressed to top Elliott's bid, although other financial suitors could emerge.

Elliott portfolio manager Jesse Cohn told Riverboard's board in a Wednesday letter that waning sales in its legacy business and the cost of acquisitions and organic diversification efforts have hurt the company's valuation.

Riverbed said it would review Elliott's offer in a statement.

"There are an awful lot of venders going the way of Dell and BMC," said Ovum plc analyst Roy Illsley, regarding the trend of established technology companies going private.

San Francisco-based Riverbed sells hardware and software to large enterprises for their wide area networks. Its products address latency and bandwidth limitations in systems that cover substantial distances.

The market has leaned more heavily toward software in recent years, presenting a challenge to growth. "You can buy anybody's switch, router or controller and you can manage it from a software layer," Illsley said. Riverbed has to protect its legacy revenue stream, Illsley added, while developing its software business.

Lake Street Capital analyst Eric Martinuzzi said that Elliott's offer comes to 2.9 times revenue for the coming year, which he deemed "fair" given the circumstances.

"If you look back over the past couple of years at these business models where the top line has kind of stalled it's a pretty fair price," Martinuzzi said, putting the take-out prices at two to three times sales.

The analyst compared the deal to Vista Equity Partners' roughly $1 billion privatization of Websense in 2013, which came to 2.5 times forward revenue. Another example is Thoma Bravo's 2012 purchase of Blue Coat Systems Inc. for $1.3 billion, or about 2.2 times forward revenue.

"It's a similar situation," Martinuzzi said of Riverbed.

"It has good technology," he explained. "It's a market leader but has a top line that had stalled a little bit."

Stuart Jeffrey of Nomura Securities International Inc. suggested in a Wednesday note that Riverbed's stagnant growth diminishes the prospects for a bidding war.

"Based on Elliott's letter, we don't believe there has been a serious dialog between Elliott and Riverbed's management/board on being acquired and other strategic options," Jeffrey wrote, questioning whether the targets's board would accept the bid.

"Riverbed appears to want to remain an independent company, as it put in place a dilutive share rights offering, which was filed on 11/10/13, to dissuade a hostile acquisition attempt," he added.

Robert Schumer and Steven Williams of Paul, Weiss, Rifkind, Wharton & Garrison are providing counsel to Elliott, which has not retained a financial adviser.

--Written by Chris Nolter.

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