Riverbed has attracted the attention of an activist hedge fund that’s offering about $3.08 billion to take the company private.
On Wednesday morning, Elliott Associates LP submitted a letter to Riverbed’s board along with a draft merger agreement offering $19 per share, or roughly a 6 percent premium over Tuesday’s closing price. As the news broke just after 7:30 a.m. Pacific time, Riverbed shares responded in the direction you’d expect, climbing roughly 12 percent to as high as $20.06 at press time.
Elliott made the details of its letter public in a Schedule 13D filing with the filed with the SEC. That’s required by law, but activist investors will also take advantage of these filings to air arguments about why they think a company needs drastic change.
In this case, Elliott has been buying Riverbed stock since September, considering the company to be an underperformer that can be fixed up. Many of those purchases were at prices closer to $14.70, but Riverbed stock price rose after Oct. 29, when Elliott filed its first 13D about the company, noting that Riverbed could “immediately increase stockholder value by implementing certain value-maximizing operational, capital structure and strategic review initiatives.” That was an indication that this activist fund was going to get on Riverbed’s case in a serious way, which Elliott believes spurred investors to inflate the share prices.
Wednesday’s 13D notes that Elliott’s draft merger agreement “contemplates a ‘go shop’ provision that would allow the Board to solicit competing proposals for a period following execution of our agreement.”
In other words, part of the plan is for Riverbed to get better offers. Elliott Managment, owning 10.5 percent of Riverbed’s shares, just wants to drive up the stock price; exactly who owns Riverbed afterward is secondary. That’s why the share price is hovering at more than $19.