Riverbed Receives $3 Billion Offer from Hedge Fund Firm

Officials with Elliott Associates, who are offering $19 per share, want to increase shareholder value at the WAN optimization company.

Riverbed Technology, a key player in the WAN optimization space and the subject of possible sales rumors over the last several months, could be bought by fund management firm Elliott Associates LP, a significant investor in the tech company.

In a letter Jan. 8 to Riverbed executives, Elliott officials said they were prepared to offer $19 per share, bringing the price tag for the company to about $3 billion. However, that could go up—the stock price has jumped since news of Elliott's offer was released, hitting $19.90 mid-afternoon Jan. 10.

In the letter to Riverbed executives—which was included in a filing with the Securities and Exchange Commission (SEC) by Riverbed—Elliott officials praised the company for its technology and its position in the market, noting that Riverbed "occupies a mission-critical position in thousands of networks, possesses extremely loyal customers who deeply value the company's service and maintenance, and has a valuable and stable platform that is capable of producing significant profitability while generating revenue growth in its core and logically adjacent markets. … We believe in the quality of Riverbed's assets."

However, they also said Riverbed has been undervalued and company officials have not taken necessary steps to increase its value to stockholders. Elliott began buying shares of Riverbed in September, and has a strong background in the WAN optimization market, thanks to its research and investments in Riverbed rivals like Blue Coat Systems and Packeteer (which Blue Coat bought in 2008), Elliott Portfolio Manager Jesse Cohn said in the letter.

Elliott officials had met with Riverbed executives in November and December to outline their views and suggestions about increasing the value of the stock. They noted that there has been "significant acquisition interest [by] numerous potential bidders, including us" in Riverbed, but that were concerned that Riverbed officials did not seem interested in pursuing any potential deals.

Riverbed officials in the SEC filing noted they are reviewing Elliott's offer.

Riverbed launched in 2002 and two years later rolled out the first of its Steelhead WAN optimization products, which have become the cornerstone of the company's product portfolio. Over the last several years, Riverbed has been extending its reach beyond WAN optimization, which is designed to accelerate and improve the movement of applications over wide-area networks.

Riverbed now also sells its Granite product lineup, which enhances the delivery of storage to organizations, the StingRay application delivery controller, and the company's Cascade network management software and Opnet application performance management solution.

At a NASDAQ investor program Dec. 3, Ernie Maddock, executive vice president and chief financial officer for Riverbed, noted that the company has grown well beyond its WAN optimization roots, but that its mission remains consistent.

"If you think back to the company's origins … it still remains the common thread for everything that the company does," Maddock said. "It's about removing the limitations of location and distance and turning those things into a competitive advantage."

Riverbed's expansion came as growth in the WAN optimization space has begun to slow. In a report in September 2013, Infonetics Research analysts said there was a "temporary" sales bump in the space in the second quarter last year, but that it still fell by 11 percent over the same period last year. They noted that Riverbed was the top vendor in the space, followed by Cisco Systems, Blue Coat and Citrix Systems.

"The WAN optimization market isn't … rosy, but what could bring this market back to life is the growing demand for cloud services, which can benefit from a smart device at the branch office that embraces the delivery of cloud services over the WAN," Matthias Machowinski, directing analyst for enterprise networks and video at Infonetics, said in a statement at the time. "But so far, cloud services have yet to become a demand driver."