Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Elliott Management Corp.'s latest maneuver may soon have other activists scrambling to create their own buyout arms.

Evergreen Coast Capital Corp., Elliott's private equity unit, submitted a bid for network-technology products maker Gigamon Inc., Reuters reported Monday afternoon, citing unidentified sources familiar with the matter. The news sent the shares surging and they closed almost 3 percent higher at $43.50. 

If the names Elliott and Gigamon already sound familiar together, it's because Elliott revealed it had a 15.3 percent stake in the Santa Clara, California-based company back in May. At the time, I wrote that Elliott was essentially lining up Gigamon Inc. to be courted by potential suitors including its larger rival Cisco Systems Inc. Analysts have also named Juniper Networks Inc., which is ironically one of Elliott's former activist targets, as a likely buyer. 

Price Perfect?
Wall Street analysts reckon Gigamon should be valued at roughly $45.75 this time next year; the most bullish believe it could fetch $50 in a takeover
Source: Bloomberg

The likelihood of a transaction increased in June, after Reuters reported that the company was working with Goldman Sachs Group Inc. and preparing to hold talks with possible buyers. But the silence since then indicates that any deal talks may have cooled, leaving Elliott's Evergreen as the last acquirer standing. And while it may genuinely be interested in acquiring Gigamon, tabling an offer for the $1.6 billion company is a way for the activist to propel any truly serious rival bidders into action. 

Spotlight
Quarterly earnings continue to cause dramatic swings in Gigamon's shares. Eliminating public scrutiny could be a reason that spurs management to consider a deal.
Source: Bloomberg

The strategy gives Elliott more control of its destiny because from here, basically only two things can happen:

  1. Another suitor will swoop in, valuing Gigamon at a level that's well above Elliott's entry price. (That's a fairly common outcome and occured most recently when Symantec Corp. triumphed in the auction for identity-theft protection company LifeLock Inc. by narrowly outbidding Elliott, Evergreen and a partner, according to filings.)
  2. Evergreen may end up owning Gigamon. And despite having to pay what will likely be a multiple of more than 3.8 times its projected revenue (not particularly cheap), there's every reason to believe it could wind up making a profit on an eventual sale of the company after improving its performance in a private setting.

By nature, activists can't ensure winning campaigns. But having a private equity arm raises the certainty of victory -- and may lead Elliott's peers to take a similar tack.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net