Riverbed CEO Says Company Has Gotten No ‘Credible’ Offers

Riverbed Technology Inc. has received no “credible” bids from buyout firms and shouldn’t have been targeted by activist shareholders, Chief Executive Officer and Chairman Jerry Kennelly said in an interview.

“My phone number is in the phone book,” Kennelly said yesterday. “If a serious party wants to call me with a credible offer, I’ll take the call. I haven’t had that.”

The San Francisco-based network-equipment maker is being pushed to sell itself by activist shareholder firm Elliott Management Corp., which owns about 10.5 percent of the company and has called it “significantly undervalued.” Riverbed last month rejected an offer from Elliott to buy it for $21 a share. Private-equity firms including Silver Lake Management LLC, Thoma Bravo LLC and KKR & Co. have also informally expressed interest in Riverbed with offers approaching $25 a share, people with knowledge of the process have said.

Riverbed yesterday said it was increasing its share-buyback program by $250 million to a total of $750 million. Elliott dismissed it as a ploy to win investor support.

“Riverbed’s shareholders want and expect the board to explore a value-maximizing sale, not to reflexively announce a buyback when the stock is up 35 percent on buyout speculation,” Jesse Cohn, a money manager with Elliott, said in a statement.

Kennelly said in the interview that the beefed-up stock-repurchase program is unrelated to Elliott’s activism. He said the company’s board decided on the move at a regularly scheduled meeting on Feb. 27 because its buybacks were approaching the previous limit of $500 million.

No Hallmarks

Riverbed’s shares -- which traded at about $15 in early November before Elliott disclosed a stake and pushed for strategic changes -- have since risen about 40 percent. The stock fell 1.6 percent to $20.99 at the close in New York.

“It’s a game of cat and mouse,” said Daniel Ives, an analyst at FBR Capital Markets, who has the equivalent of a hold rating on the shares. “Riverbed’s comments and strategy are making for a confusing situation for investors. I think Jerry’s comments are what investors are somewhat focused on.”

Kennelly, who co-founded Riverbed in 2002, said the networking-gear provider doesn’t share the hallmarks of businesses that can be improved by shareholder activism. Riverbed has returned more than 100 percent of its cash flow to investors over the last two years via buybacks, he said. The company is also profitable with operating margins that haven’t fallen below 20 percent in recent years, he said.

The CEO added that the board has brought in high-ranking technology executives and isn’t stacked with longtime friends of the firm. Last year, Riverbed added Microsoft Corp.’s Satya Nadella to the board. Nadella, who was appointed Microsoft CEO last month, is stepping down from Riverbed’s board.

Not Broken

Kennelly thanked Elliott “for bringing attention back to our stock and to our company.” Still, he said, “we’re not a proper target for activism. There’s nothing broken to fix.”

Riverbed, which is completing an integration of Opnet Technologies Inc. that had weighed on earnings in recent quarters, is now poised to expand in software for managing networks, Kennelly said.

Elliot Sloane, a spokesman for Elliott, declined to comment on Kennelly’s remarks.

Riverbed has struggled to diversify from its core networking equipment business. The company specializes in gear that helps companies reduce the cost and increase the speed of links between corporate data centers and branch offices.

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