Elliott Management Corporation (“Elliott”) today issued a public response to a
series of grossly misleading statements made last week by executives of
Riverbed Technology RVBD.
“By publicly denying the buyer interest that has been expressed to the Company
and by comparing the value of Elliott's bid to a false reality, Riverbed's
Management and Board have crossed a line from failing shareholders to actively
misleading them as well,” said Jesse Cohn, portfolio manager at Elliott. “It
is bad enough that this Board has overseen a history of poor execution, an
overpriced acquisition and severe stock price underperformance relative to all
relevant benchmarks and peer averages over any period of time. Now, this same
Board is allowing management to make highly misleading statements in the face
of a very real opportunity to maximize value for shareholders through a
transaction.”
Riverbed's stock price performance speaks for itself:
Stock Price Performance ^(1) (2)
1-Year 2-Year 3-Year 4-Year 5-Year
RVBD (35.0 ) (49.4 ) (48.9 ) 39.5 126.9
10-K Peers ^(3) 16.3 20.3 4.7 75.0 177.1
Over / (under) (51.3 ) (69.7 ) (53.7 ) (35.5 ) (50.3 )
performance
RVBD (35.0 ) (49.4 ) (48.9 ) 39.5 126.9
Proxy Peers ^(4) 6.4 (8.3 ) 6.8 82.4 254.0
Over / (under) (41.4 ) (41.1 ) (55.8 ) (42.9 ) (127.1 )
performance
RVBD (35.0 ) (49.4 ) (48.9 ) 39.5 126.9
Index Average ^(5) 31.4 46.4 61.8 89.3 132.9
Over / (under) (66.4 ) (95.7 ) (110.7 ) (49.8 ) (6.1 )
performance
Source: Bloomberg,
company filings.
(1) Performance measured to 10/29/13, which represents the day before
Elliott began significant purchases of RVBD stock.
For reference, Elliott filed its 13D on 11/8/13 and Riverbed
closed at $15.11 on 11/7/13.
(2) Calculated using a “total return” calculation which includes impact of
both stock price performance and dividends.
(3) Includes CA, CPWR, CSCO, CTXS, FFIV, NTCT, and RDWR.
(4) Includes AKAM, ARUN, ADSK, CTXS, FFIV, FTNT, INFA, NTGR, NUAN, PLCM,
RAX, RHT, ROVI, TIBX, and VRSN.
(5) Average of NASDAQ Composite Index and S&P 500.
In response to this outrageous behavior, Elliott is providing shareholders
with the facts in the form of a fact-check that exposes Riverbed's misleading
statements. In addition, Elliott has filed a presentation by the highly
respected investment bank Moelis & Company, which validates the attractiveness
of Elliott's $21-per-share bid for Riverbed. This document was filed this
morning as an exhibit to Elliott's amended 13D and is available at
www.sec.gov.
“Riverbed purports to take seriously any offer that is ‘serious' and
‘credible.' As the presentation put forward by Moelis today shows, our bid of
$21-per-share represents compelling value for Riverbed shareholders that any
responsible Board should explore,” Cohn stated. “The clear and correct path
forward is for the Board to stop misleading shareholders and instead allow all
interested buyers, including Elliott, to conduct diligence with an eye toward
exploring a value-maximizing transaction.”
Elliott, affiliates of which collectively own or have economic exposure to
approximately 10.5% of the common stock and equivalents of Riverbed
Technology, Inc., is a multi-strategy investment firm with deep experience
investing in public and private companies.
Full text of the fact-check is below:
At an investor conference last week, Riverbed CFO Ernie Maddock made a number
of statements about buyer interest in Riverbed that are simply inconsistent
with the facts. The same day, Riverbed CEO Jerry Kennelly gave an interview to
Bloomberg News that doubled down on these misleading distortions.
* When asked whether the Company had received unsolicited offers in the $25
range, Maddock replied, “I think it's reasonable to assume that, had those
existed, there would have been some response.” Riverbed CEO Jerry Kennelly
subsequently told Bloomberg that no “serious” party had made a “credible”
bid for the Company.
* FACT: Based on Riverbed's own direct admissions to Elliott, numerous
parties have contacted the Company to express interest in buying
Riverbed. Despite Maddock and Kennelly's attempts to mislead
shareholders, this strong buyer interest exists, it has been directly
expressed to the Company and its advisors, and it has thus far been
completely ignored by Riverbed's Board. Furthermore, despite making a
$21-per-share cash bid and indicating that we could potentially
increase our own offer if given access to diligence, Riverbed has
denied us the opportunity to conduct any diligence.
* When asked to explain the analysis behind the Company's assertion that
Elliott's $21-per-share bid undervalued the Company, Maddock stated, “We
did the traditional math, and looked at growth rates … And the conclusion
was that as things exist today, there is likely more opportunity in
allowing the Company to continue to execute its plan.”
* FACT: There are real questions about execution. Riverbed has been
touting an “illustrative operating plan” of consistent 10% revenue
growth – something that is not actually being achieved. We cannot
understand why Riverbed's Board and management believe it is
acceptable to tell shareholders they are modeling 10% annual revenue
growth when guidance as of their last earnings call was “between 4%
and 6%” – a range that is approximately half that amount.
* When asked about the possibility of running a sale process, Maddock said,
“We're choosing to take our time, energy, and attention and focus it on
the execution of our business plan, which ultimately is the way of
creating long-term shareholder value and that's what we're paid to do.”
* FACT: Riverbed's Board has an obligation to maximize shareholder
value. Refusing even to entertain the strong buyer interest that
exists – interest at levels that represent premium valuations above
what the Company is capable of achieving on a stand-alone, publicly
traded basis – is not consistent with the Board's fiduciary
obligation and severely compromises its commitment to shareholders.
* In defending his unwillingness to allow Elliott and the other numerous
interested buyers to conduct expedited diligence, Kennelly stated “we're
not a proper target for activism. There's nothing broken to fix.”
* FACT: First, Kennelly is attempting to mislead by discussing
activism: Elliott is a potential buyer of Riverbed. Elliott has put a
serious, credible and fair premium offer on the table. Elliott has
hired Moelis & Co. as its M&A advisor. These actions demonstrate
Elliott's intentions to acquire the business outright. Boards that
take their obligation to shareholders seriously, particularly boards
of underperforming companies, typically respond to such offers by
providing appropriate diligence to the potential acquirer and to
other interested buyers with the goal of eliciting the highest and
best offers for the Company. We have been encouraging this Board to
do just that.
Second, given severe and consistent stock price underperformance, its
value-destructive track record in acquisitions and its poor execution
over an extended timeframe, Riverbed is absolutely a “proper target
for activism.”
Finally, in relation to the last part of Kennelly's statement, no CEO
should ever state that there is “nothing broken to fix.” This
represents dangerous complacency and as the well-respected Silicon
Valley businessman Andy Grove once observed, “Complacency breeds
failure.”
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