On January 9th, Paul Singer’s activist private equity firm Elliot Management, announced an unsolicited takeover offer for Riverbed Technology, a California based networking company serving the IT industry.
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The offer was announced in a letter sent to the company’s Board of Directors, which was also filed with the SEC. The offer letter was signed by one of Singer’s top lieutenants, partner Jesse Cohn (who describes himself, maybe too selfeffacingly, as a portfolio manager). Also, and a little aggressively perhaps, the letter contained an attached complete draft merger legal agreement as a basis for putting together a deal.
Elliott’s offer in January was US$19 per share in cash for all of Riverbed’s shares, which are listed on Nasdaq, valuing the bid then at US$3.1 billion based on its approximately 162 million shares outstanding.
Elliott also indicated at the time it had acquired a position of about 10.5% in the equity of the firm, just to keep the pressure on.
Riverbed had become vulnerable to a takeover bid after announcing poor operating results for the first three calendar quarters of 2013, and actually lost money even though revenues were rising.
Just one week later however Riverbed, with Goldman Sachs on board as their advisor, rejected the offer outright, announced its return to profit for the fourth quarter and provided forward guidance for expected continued progress in the forthcoming quarter to March 31st, with CEO Jerry Kennelly stating, “Our March quarter outlook, combined with our December quarter revenue and earnings performance, are proof points that our strategy to offer the most complete platform for location-independent computing is beginning to deliver results.”
Any company under attack from activist shareholders such as Paul Singer must certainly proactively seize the public relations high ground, preferably with good numbers to report just coming in. Jerry Kennelly has clearly ticked off that box now in his response.
Then you must be able to give grounds for sustained optimism looking forward if you can, and he has just done that as well. Finally a CEO must convince its shareholders the company is being managed for their best interests and demonstrating that everyone is doing their job as they should.
Immediately after Elliott’s initial proposal therefore Jerry Kelly made the right play, though he has mortgaged his credibility to being right about the March quarter in the process, which is after all quite a short time frame to compare a result with the prediction, and with the first calendar quarter of the year often a quiet one in IT procurement.
Now it is already half way through the quarter, and Elliott has just applied a little more pressure, raising its unsolicited bid to US$21per share, outlined in a new letter from Elliott to the Riverbed Board revealed yesterday, and again signed by Jesse Kohn.
In their latest letter Elliott indicated this would be the highest bid they would make without additional access to private due diligence materials. Elliott also criticized the company for “the Board’s decision to continue to ignore the substantial acquisition interest in the Company (at values well above our previous offer) that we know has been brought to the Board’s attention.”
Elliott provided no further more specific enlightenment as to what precisely they meant by that though in the letter, simply reiterating further down….
“As mentioned above, we are keenly aware that other potential buyers have expressed their acquisition interest directly to Riverbed and its advisor, Goldman Sachs. These parties appear to be willing to offer materially more for the Company than we are. However, despite Riverbed’s statement that it would carefully review any credible offer, it is our understanding that Riverbed’s Board has thus far completely ignored these overtures. This understanding is based on the Company’s own direct admissions that a number of parties have expressed interest.”
The total value of this new offer of US$21 per share, from Elliott, again for all the company’s shares, is now up to US$3.4 billion. In response, the company’s shares have ticked up to just below the price of the bid, closing yesterday at US$20. 66 per share, indicating shareholders, perhaps do not see a high probability of a much richer competing bid coming from somewhere else, now the company is in play.
Having built a significant position, but clearly not a long-term shareholder, Elliott’s tactical interest is to hope another party does indeed make a bid at a higher price, so they may profit further on the way out. Simply by bringing attention to the company being in play, therefore, which can bring more suitors out of the woodwork may be their view, therefore, whoever the other, as yet unknown, claimed potential bidders that they have referred to may actually be.
In a game of cat and mouse if the mouse is nimble enough, it can sometimes escape the clutches of its much larger adversary. Having chosen to go to war, Riverbed must now demonstrate just how nimble it is, in order to survive.