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Riverbed to Restructure, Review Business Plan

Company executives said third-quarter revenues will fall short of expectations, while investor Elliott Management applauds the review decision.


Count Riverbed Technology among the tech companies looking to restructure in the face of disappointing financial numbers.

Executives with the company, which is looking to grow beyond its WAN optimization roots into more of an application performance infrastructure vendor, said Oct. 9 that it has begun a restructuring effort in hopes of cutting $20 million to $25 million in costs and improve operating margins by 1 to 2 percent. It's going to happen fast—in a statement, Riverbed officials said the restructuring work will be done by the end of the year.

"In light of current business conditions, we are taking decisive steps to improve our cost structure in order to drive enhanced operating performance," Chairman and CEO Jerry Kennelly said in a statement. "We believe these actions enable us to deliver increased value to our shareholders while continuing to deliver the products and support expected by our customers."

Kennelly did not elaborate on what those actions will be. The decision came as Riverbed officials downgraded their expectations for the third quarter, saying that revenue will come in between $276 million and $277 million, a drop from the previous forecast of $285 million and $291 million. The company will announce third-quarter earnings Oct. 23.

Along with the restructuring, the company's board of directors will also do a comprehensive review of the business to find what options are available—both strategically and financially—to better enhance shareholder value. Riverbed isn't putting a timetable on the review.

As with other tech companies, including EMC and Juniper Networks, activist investor Elliott Management is playing a role at Riverbed. The fund management firm in January made a $3 billion bid for Riverbed, saying its products were strong but was undervalued, and that company executives needed to do more. Elliott's offer—at about $19 per share—was rejected, but the firm apparently has upped its bid by $2.

"We commend the Board for initiating a strategic review and believe that Riverbed is a great company with products customers value," Jesse Cohn, portfolio manager at Elliott, said in a statement after the company's announcements. "We have made a $21 [per-share] bid for the company, and our team and advisors look forward to completing our confirmatory diligence in an expedited fashion."

In the second quarter, Riverbed saw revenue grow 6 percent and income come in at $6.8 million—the company had lost $16.5 million in the second quarter 2013—but executives indicated that had more to do with cutting expenses than growing the business.

"Our ongoing commitment to disciplined expense management enabled us to deliver solid earnings per share consistent with the expectations we outlined at the outset of the quarter," Kennelly said in July.