News

posted on 21 March 2008 18:48

Consequent upon Packeteer responding negatively to its March 6th friendly takeover offer, aggressive hedge fund Elliot Associates is making a hostile takeover bid for Packeteer.

Packeteer develops and sells wide area network (WAN) acceleration products and has reported a series of poor results causing a substantially depressed stock price; it lost slightly more than half of its value over twelve months. There is strong competition in the market with Riverbed being one of the major players and Silver Peak another.

Elliot Associates believes this is down to poor execution and also that the company should be sold to a larger concern. That is the best way to get a proper return from investment in the shares.

On May 24th last year Elliot Associates made a filing in which it stated: "The Reporting Persons (Elliot Associates) expressed to the Board their views that: i) the Issuer (Packeteer) has leading technology in one of the fastest growing segments of the networking market, but has proven unable to capitalize on such technology; ii) the business segment in which the Issuer operates is becoming increasingly competitive; and iii) the Issuer's technology may prove extremely valuable to a larger acquirer looking to enter the wide area network optimization market or to supplement its current product offering. The Reporting Persons believe that prompt action by the Board to commence a sales process is necessary."

Paketeer had earlier reported significantly poor results for its first quarter of 2007.  Packeteer's VP worldwide sales, Arturo Cazare, then resigned after about three years with the company. Ray Smets  was appointed in September, 2007, as the new VP for world-wide sales.

The full year 2007 results showed net revenues of $144.5 million, about the same as the $145.1 million for 2006, but there was a net loss of $25.9 million versus net income of $4.9 million in 2006.

Elliot owns 9.8 percent of Packeteer stock and it had made several proposals to Packeteer's management about improving performance but was not invited to address the board.

Packeteer's response to the friendly takeover offer was to say we won't talk unless you agree not to mount a hostile takeover offer. That was unacceptable to Elliot and so it made its offer hostile and is inviting Packeteer shareholders, over the head of its management, to choose whether it or Packeteer's management will deliver most shareholder value to them.

The bid terms are unchanged, being $5.50 a share, amounting to about $190 million. Packeteer shares are traduing around $5.19 so there is not much of a premium now. When Elliot made its first approach the shares were trading at $3.86 and there was a healthy premium of 42.5 percent at that point.

Packeteer's management has advised its shareholders, apart from Elliot obviously, to sit tight and do nothing while it evaluates the bid. After consulting its financial advisors a formal response will be made to all shareholders in ten business days.

It seems obvious that, if Elliot Associates wins its takeover offer, Packeteer CEO David Cote and his team will be invited to walk the plank.

The offer expires on April 16th, but it could be extended.

^{[Paul Roberts, news editor.]}