Activist investor fires starting gun on Riverbed bidding war

Elliot Associates says Riverbed's share price has been hampered by slowing WAN optimisation market

Activist investor Elliot Associates has launched a $3.1bn (£1.9bn) takeover bid for Riverbed, citing concerns that its valuation has been hit by a slowdown in its core WAN optimisation market.

The hedge fund hopes its $19.00-a-share bid will spark a bidding war for the vendor, which is investing heavily to reinvent itself as an application performance infrastructure player.

Having previously invested in Riverbed competitors Blue Coat and Packeteer, Elliot took a position in Riverbed in September, believing the company was undervalued, and amassed a 10.5 per cent stake in the firm.

In a letter to Riverbed's management – which Elliot reproduced in an SEC filing – Jesse Cohn, portfolio manager at Elliot, said the vendor had ignored its input in November and December on how to go about boosting the share price.

"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.

Elliot's offer, which represents a 29 per cent premium on Riverbed's share price of $14.70 before it made a significant acquisition of its stock, contemplates a "go shop" provision, allowing the board to solicit competing proposals following execution of its agreement.

Riverbed's share price has sagged in recent times as the WAN optimisation market it bosses begins to show signs of commoditisation.

The vendor's attempt to reinvent itself through acquisition has not progressed without difficulty, something Cohn noted in his letter to Riverbed's board.

"We believe in the quality of Riverbed's assets," he said.

"...However, Riverbed's valuation has been impaired by slowing growth in its core WAN optimisation market and by significant investments in both acquisitions and operating expenses undertaken to diversify away from the core WAN optimisation business. As a result, we believe the company's stock, prior to the filing of our 13D, meaningfully underperformed its peers and indices over nearly every significant time period."

In a statement, Riverbed said its board will review the offer and communicate its view in due course, consistent with its fiduciary duties.