Elliott Management has a lot on its plate at the moment, including taking on a huge target in Juniper Networks. But the hedge fund hasn’t taken its eyes off Riverbed Technology, a maker of networking equipment and software for which it has bid $3.2 billion.
In a letter to Riverbed’s board sent on Tuesday, Elliott again urged the networking equipment maker to either accept its takeover bid of $19 a share or run an auction for itself. The letter comes as the company’s directors prepare to meet this week, with the activist campaign almost certainly on their agenda.
The investment firm, which owns a 10.5 percent stake, mustered quotes from 10 research analysts supporting the company running a sales process, and contended that a flurry of investors have done the same.
If Riverbed doesn’t run a process, Elliott wrote, the company risked its stock falling to between $14 to $15 a share, down from its current level of nearly $20.
“Rejecting the idea of a sale evaluation and instead offering shareholders assurances that the company has a plan for generating value as it moves into a difficult and uncertain future is an extremely risky proposition,†wrote Jesse Cohn, the Elliott portfolio manager running the activist campaign.
A number of companies, including private equity firms and strategic competitors to Riverbed, have expressed interest in participating in an auction, said people briefed on the matter who were not authorized to speak publicly. Among those who could be interested are leveraged buyout firms with a history of technology investments, including Kohlberg Kravis Roberts, Silver Lake, Francisco Partners and TPG Capital.
Mr. Cohn added in the letter that he saw two potential paths for Riverbed: running a sales process, or rejecting Elliott’s takeover bid and continuing to operate as it has. Choosing the latter, he argued, would unfairly deprive shareholders of increased value for their holdings.
Shareholders and the Street are already skeptical of Riverbed’s ability to execute, and given that Riverbed has missed Street revenue or EPS in four out of the last five quarters and backed away from its “illustrative†plan at the same Analyst Day where it was mentioned, we believe choosing Path B would expose shareholders to substantial and immediate downside risk.
