Investment Firm Launches $3.1B Bid To Acquire Riverbed

Investment firm Elliott Associates and related firm Elliott International on Wednesday unveiled a bid to acquire Riverbed Technologies in a deal they said will help that company break away from what they called a slowdown in growth of the WAN acceleration market.

Elliott Associates and Elliott International, which together own 10.5 percent of Riverbed, have bid $19 per share, or about $3.1 billion, for the networking company. That is about 6 percent over the company's share price before the acquisition bid was launched. Investors expect the bid to increase, and drove the company's shares to $19.64 by the close of the trading day.

Jesse Cohn, portfolio manager for Elliott Management, the investor's umbrella organization, wrote in a Wednesday SEC filing that Elliot in September began buying Riverbed shares under the belief the company was undervalued.

[Related: Riverbed Accelerates Steelhead WAN Optimization Appliance With RiOS 8.5 ]

Cohn, in the SEC filing, called Riverbed a "long-established company" with quality assets and that the company occupies a "mission-critical position in thousands of networks" and has "extremely loyal" customers.

"However, Riverbed's valuation has been impaired by slowing growth in its core WAN optimization market and by significant investments in both acquisitions and operating expenses undertaken to diversify away from the core WAN optimization business ... [and has] meaningfully underperformed its peers and indices over nearly every significant time period," Cohn wrote.

Elliott is prepared to devote "considerable resources" to completing its acquisition bid, he wrote.

Cohn also wrote that Elliott in November and December first approached Riverbed about an acquisition of the company, and that "Riverbed has not indicated a desire to explore the significant acquisition interest of numerous potential bidders, including us."

Cohn also wrote that Elliott will provide a 45-day "go-shop" period during which Riverbed may solicit better offers for the company.

Riverbed is very valuable to the data center, said Keith Norbie, director of server, virtualization and storage for the Eastern U.S. at Technology Integration Group (TIG), a San Diego-based solution provider and Riverbed partner.

"I've always looked at Riverbed as one of three companies that is really changing the physics of the data center," Norbie. "VMware brought virtualization to the mainstream. Data Domain brought a focus on deduplication and backups. And Riverbed changed the physics of bandwidth."

NEXT: Riverbed Going Through Big Changes, But Remains Valuable

Riverbed is undergoing the kind of shift in gears that most technology companies experience, TIG's Norbie said.

"Those shifts open the doors to companies like Elliott Associates to come in and make an acquisition," he said. "While some observers may argue that Riverbed's day has come and gone with companies like Silver Peak nipping at its heels, Riverbed is really more like VMware in trying to redefine itself."

For instance, Norbie said, Riverbed will have an interesting role to play in the software-defined networking (SDN) market.

"Riverbed has already been doing software extraction of networking functionality for several years," he said. "In that time, it has become a leader. People see SDN as a switching or router technology. But Riverbed is at the center of SDN with application acceleration."

Riverbed declined CRN's request for interview. However, the company Wednesday released a statement that read, in part, "Riverbed's Board will review the offer and communicate its views in due course. ... As part of the commitment of the Riverbed Board and management to shareholders, the Board regularly reviews all options for generating and delivering value. The Board will review the Elliott proposal thoroughly, taking into account the Company's current strategic plan and growth initiatives."

Daniel Ives, an analyst with FBR Capital Markets, wrote in a Wednesday investment report that Elliott's bid is the first step in a "game of high stakes poker."

"To this point, we believe other strategic and financial buyers could enter the Riverbed bidding process over the coming months as this remains a core strategic asset within the broader technology food chain. In our opinion, if not Elliott, we see a financial/private equity buyer as the most likely bidder," Ives wrote.

PUBLISHED JAN. 8, 2013