Hedge Fund Bids $3 Billion to Buy WAN Optimizer Riverbed

Activist hedge fund Elliott Associates, which owns about 10.4 percent of WAN optimization and performance management vendor Riverbed Technology (RVBD), on Wednesday bid $3.08 billion, or $19 a share, to buyout the company.

Elliott’s offer represented a 6 percent premium on the value of Riverbed’s shares at market close on Tuesday but by the end of trading on Wednesday, investors had bid the stock up to $19.53, near its 52-week high. Riverbed’s stock has remained stagnant for the better part of a year as its sales slowed. The company’s market cap currently stands at $3.16 billion.

Elliott Management is among the world’s biggest hedge fund firms with $23.9 billion in assets. According to a Reuters report, the fund showed a 12.4 percent return in its Elliott Associates portfolio. The fund, which last year played a loud role in BMC Software’s private equity buyout, initially bought a position in Riverbed in September and has since said it believes the company is “significantly undervalued,” pressuring the vendor to overhaul its strategy.

In November, Riverbed signaled its intention to fend Elliott off, enacting a shareholder rights plan to levy a penalty on any shareholder acquiring 10 percent of the company’s stock without board approval.

According to a number of reports, in a letter Wednesday to Riverbed’s board, Jesse Cohn, an Elliott portfolio manager, wrote, “By any measure, we believe our proposal represents a compelling opportunity that your stockholders will find extremely attractive.”

Cohn wrote that he has met with Riverbed founder and chief executive Jerry Kennelly to encourage the company to sell itself.

“Though this mostly private dialogue has been amicable, we have become concerned that Riverbed has not indicated a desire to explore the significant acquisition interest of numerous potential bidders, including us,” he wrote.

Elliott’s stock in trade has become pressuring companies in which it holds significant positions to sell themselves. For example, the hedge fund owned some 10 percent of BMC and scuffled with the software developer for some time before it finally caved and agreed to a $6.9 billion buyout from a private investor group. Elliott’s playbook includes similar circumstances with Novell three years ago.

With Riverbed, Elliott’s offer includes a “go shop” clause that allows Riverbed to solicit higher bids, suggesting the hedge fund may be more interested in forcing a sale than in buying the vendor itself.

Riverbed said in a statement that it was examining Elliott’s offer.

Late last year, Riverbed said that had completed its four-year blueprint to transform itself from a single-product vendor to a platform company. With an expanded product set, Riverbed said it has positioned itself to capitalize on the application performance infrastructure market, a segment estimated to be 10 times larger than its core $1 billion WAN optimization sector.