Riverbed Technology received a buyout offer from activist fund manager Elliott Associates on Wednesday that valued the Silicon Valley computer-networking company at more than $3 billion.
Elliott, which along with its affiliates owns about 10.5 percent of Riverbed, offered to pay $19 a share, according to a statement, a 6.4 percent premium to the stock's Tuesday closing price. The shares jumped as high as $20.29, indicating that investors expect bids to rise.
Elliott started pressuring Riverbed, headquartered in San Francisco, to review its strategy and capital structure in November, calling the stock "significantly undervalued." Riverbed then started working with Goldman Sachs to study strategic options, according to people with knowledge of the situation.
The stock has "meaningfully underperformed its peers and indices over nearly every significant time period," Elliott wrote in a letter to Riverbed's board, which was included in the statement. "Though this mostly private dialogue has been amicable, we have become concerned that Riverbed has not indicated a desire to explore the significant acquisition interest of numerous potential bidders, including us."
Riverbed fell 8.3 percent last year, while the Standard & Poor's 500 Index climbed 30 percent.
At $19 a share, Elliott's offer is worth $3.08 billion. The proposal should prompt an effort to find other potential buyers, Jesse Cohn, a portfolio manager at Elliott, wrote in the letter.
"We are aware that numerous parties have expressed acquisition interest in Riverbed, and this structure guarantees that the company will secure a healthy premium for its stockholders while holding open the opportunity to obtain an even higher premium," Cohn wrote.
Riverbed said in a statement that its board is reviewing the offer and makes no guarantee that the Elliott proposal or any other will result in a deal. John Christiansen, a spokesman for Riverbed, declined to comment beyond the statement.
Eric Martinuzzi, an analyst at Lake Street Capital Markets, called Elliott's bid "fair" in a report today and lowered his recommendation to hold from buy after the stock's jump. While Elliott's offer could be topped by another bidder, "a soft quarter or guide could send the shares back down," Martinuzzi wrote. Riverbed is scheduled to report fourth-quarter earnings on Jan. 30.
Elliott, based in New York, has pressured technology providers including Sunnyvale-based NetApp, BMC Software and Compuware to boost shareholder value after taking stakes in the companies. Activist funds generally buy shares in companies and try to force corporate management and directors to make changes that boost investor returns.
Elliott started buying Riverbed shares in September and is the second-largest investor, behind Fidelity Management & Research, according to Bloomberg data. Following today's disclosure, the stock jumped to its highest in almost a year.
Riverbed competes with companies such as F5 Networks, providing technology that helps organizations manage data networks. Elliott invested in two other rivals in the past. Blue Coat Systems was acquired by private equity firm Thoma Bravo for about $1.3 billion in 2012. Blue Coat acquired competitor Packeteer in 2008.
Riverbed responded to Elliott in November by adopting a stockholder rights plan, imposing a "significant penalty" upon any shareholder acquiring 10 percent of the company's stock without the board's approval.