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Elliott Sends Letter to the Board of Riverbed

Elliott Management Corporation (“Elliott”) today sent a letter to the Board of Directors of Riverbed Technology (NASDAQ:RVBD) reporting that Elliott has received overwhelmingly supportive feedback from shareholders and equity analysts for the idea that Riverbed should fully explore Elliott’s offer to acquire Riverbed, as well as the other acquisition interest that exists. After speaking with a majority of Riverbed’s shareholder base, the feedback highlights the following:

  • Riverbed shareholders and equity analysts are strongly in favor of Riverbed initiating a process to explore the significant acquisition interest that exists from all parties, including Elliott.
  • Riverbed is an excellent candidate for acquisition.
  • Shareholders and equity analysts were skeptical of Riverbed’s ability to execute should Riverbed choose not to explore a sale and believed the stock would return to the $14-$15 range in such a scenario.

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 letter follows:

“January 14, 2014

Riverbed Technology, Inc.
199 Fremont Street
San Francisco, California 94105
Attn: Jerry Kennelly, Chief Executive Officer and Chairman of the Board

Dear Members of the Board of Directors:

On behalf of Elliott Associates, L.P. and Elliott International Limited (collectively, “Elliott” or “we”), the owners of 10.5% of the common stock and equivalents of Riverbed Technology, Inc. (“the Company” or “Riverbed”), I wanted to thank you in advance for consideration of our offer and of this additional note. We strongly believe that our $19 offer and “go-shop” structure provide compelling value for shareholders, and our team and advisors are enthusiastically looking forward to moving ahead with our offer and negotiation of definitive documentation.

The purpose of this short note is to offer a few additional thoughts in advance of your Board meeting later this week. We understand you will be discussing how and whether to proceed with our offer, and we thought sharing some of the feedback we have received would add value to your discussion.

The feedback we have received falls primarily into two categories: feedback from shareholders, and feedback from independent equity research analysts and informed media. Regardless of the source, the feedback we have received has been overwhelmingly supportive of the idea that Riverbed should fully explore our offer and the other acquisition interest that exists.

The balance of this note lays out in more detail what we have seen and heard from others regarding our offer and concludes with our thoughts on Riverbed’s paths ahead.

Shareholders Support Exploring Our Offer and Other Interest

Since the initial filing of our 13D in November, we have been inundated with phone calls from Riverbed shareholders, both new and longstanding. This feedback has only intensified over the last five days. At this point, we have had dozens of conversations and have heard from a majority of Riverbed’s shareholder base. Feedback was varied and thoughtful, but primarily conformed to the following thoughts:

  • Riverbed should explore Elliott’s offer and any other credible interest
  • Riverbed should attempt to solicit the highest price possible for the Company
  • Should Riverbed not do so, the stock would return to the $14-$15 range

Numerous shareholders also had thoughtful views on Riverbed’s execution to date, stock price performance and path forward. Without opining on these matters ourselves, it is worth nothing that many of the shareholders we spoke with volunteered that they support a sale process because they are frustrated by historical execution and skeptical of the Company’s plan and ability to execute in the future.

This context is important for the Board to keep in mind when evaluating Riverbed’s next steps. Rejecting the idea of a sale evaluation and instead offering shareholders assurances that the Company has a plan for generating value as it moves into a difficult and uncertain future is an extremely risky proposition. The feedback we’ve received suggests that Riverbed would find shareholder patience for such assurances at an all-time low.

Equity Research Supports and Expects Pursuit of a Process

Equity research analysts have generally followed Riverbed for years, and they talk frequently with their clients who are Riverbed shareholders. Their views both reflect the views of the shareholder base and influence current and prospective shareholders.

Elliott believes it reviewed all of the research that was published regarding our offer for the Company. From this review, it is apparent that equity research analysts overwhelmingly ruled in favor of our offer, highlighting the compelling value for shareholders and the opportunity for a sale process that could yield a higher offer.

The quotes were illustrative and echoed many of the sentiments we heard repeatedly from shareholders:

“Elliott Mgmt has offered to acquire RVBD for $19/share, an attractive offer in our opinion…” – UBS, January 8, 2014

“Elliott's $19.00 RVBD bid represents 2.9x our forward year revenue and we see it as fair.– Lake Street Capital Markets, January 8, 2014

“We believe Riverbed is an attractive acquisition target…” – Gabelli & Company, January 9, 2014

“We believe Riverbed remains an attractive LBO candidate, given its depressed operating margin and stable cash flow, as services adds stability at 40% of revenue” – Citigroup, January 9, 2014

“We give Riverbed an M&A rank of 1, seeing a high probability (30-50%) of a transaction, and weight our M&A value 30% (reflecting the probability implied by this ranking) within our price target methodology.” – Goldman Sachs, January 8, 2014

We see this bid as a good deal for investors as Riverbed's core WANOP business has stagnated and new growth opportunities like Granite remain unproven.” – J.P. Morgan, January 8, 2014

“Overall, we believe investors loudly applaud a sale with open arms given the continued headwinds and inconsistent operating performance witnessed over the past year in the core WAN optimization business.” – FBR, January 8, 2014

“A takeout offer for Riverbed will now force the company to think hard about initiating a formal sale process. With an interested buyer, we don't believe the company can ignore exploring a sale process for long.– Oppenheimer, January 8, 2014

“Elliott already has a 10.5 percent economic interest, many long-term holders are dissatisfied, and the bid will attract arbitrage investors looking for a quick sale. This sort of pressure is hard for any board to ignore. Setting a formal sale process in motion could also give [Jerry] Kennelly, who is approaching retirement age, a chance to help define his legacy.– Reuters BreakingViews, January 8, 2014

“In total, we’re inclined to believe that the Board of Directors (including Jerry Kennelly) will do the right thing for Riverbed shareholders and they’ll initiate a process to evaluate the sale of the business.” – Jefferies, January 9, 2014

To recap, a diverse set of leading equity research analysts who have followed this company, have witnessed its past execution and understand its valuation reacted to our bid by stating that:

  • Our bid represents an attractive offer for the Company
  • Riverbed is an excellent candidate for acquisition
  • Riverbed shareholders are applauding the idea of a sale process, because it represents a good deal for them
  • Riverbed should run a process to explore the significant acquisition interest that exists, including Elliott’s

These views are straightforward and compelling, and they represent the investing community’s clear expectations about what comes next for Riverbed. This point is worth emphasizing to rule out the idea that Elliott’s involvement in the stock merely “shined a light on” or “drew attention to” the Company, attracting new investors whose interest is unrelated to our proposals for creating value.

That simply isn’t the case. The quotes above clearly illustrate the expectations that have generated new interest in the stock. If those expectations were to be upended by whatever the Company chooses to do next, we believe many of the investors that so quickly came into the stock would just as quickly leave, and Riverbed’s stock price would revert back to where it was trading last October.

Next Steps

In the wake of our offer, Riverbed can choose one of two paths:

A) Engage with Elliott and the other interested buyers by helping them conduct efficient due diligence in order to deliver binding, premium offers for the Company that the Board can then evaluate as being in the best interests of the shareholders; or

B) Publicly reject Elliott’s offer, decline to show any interest in evaluating a sale and put forward Riverbed’s stand-alone growth initiatives as the superior path to value despite having failed to investigate acquisition interest in the Company. Riverbed may cite its current quarter, if good, and/or issue optimistic guidance in conjunction.

Path A allows Riverbed to engage with the interested parties and to conduct a competitive process to solicit the highest offers possible for the Company. Riverbed could then understand what definitive offers exist and thoughtfully evaluate the merits of those offers relative to the alternatives. Based on its conclusions at that point, Riverbed would be in an informed position to determine which course of action would maximize value in shareholders’ best interests.

By contrast, Path B deprives shareholders of the opportunity to explore a certain and substantial premium in favor of sight-unseen assurances from Riverbed that it has a plan that will lead to a better outcome. Shareholders and the Street are already skeptical of Riverbed’s ability to execute, and given that Riverbed has missed Street revenue or EPS in four out of the last five quarters and backed away from its “illustrative” plan at the same Analyst Day where it was mentioned, we believe choosing Path B would expose shareholders to substantial and immediate downside risk.

As significant shareholders, it is our sincere hope that Riverbed’s Board will decide to pursue Path A by running a process that includes Elliott. The feedback we have heard from other shareholders and from the Street leads us to believe that this is their sincere hope as well. As Riverbed considers what is best for its owners, the shareholders, we believe the evidence is overwhelming that Path A would lead to a value-maximizing outcome while avoiding the substantial downside risks associated with Path B.

We again wanted to thank Riverbed’s Board for considering our offer. We are eager to get started on diligence and to work expeditiously to enter into a binding agreement to acquire the Company. As always, I am happy to make myself available to answer any questions you may have.

Very truly yours,

Jesse A. Cohn
Portfolio Manager”

Cautionary Statement Regarding Forward-Looking Statements

The information herein contains “forward-looking statements.” Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could,” “should” or the negative of such terms or other variations on such terms or comparable terminology. Similarly, statements that describe our objectives, plans or goals are forward-looking. Our forward-looking statements are based on our current intent, belief, expectations, estimates and projections regarding the Company and projections regarding the industry in which it operates. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to differ materially. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

About Elliott Management Corporation

Elliott Management Corporation manages two multi-strategy hedge funds which combined have more than $23 billion of assets under management. Its flagship fund, Elliott Associates, L.P., was founded in 1977, making it one of the oldest hedge funds under continuous management. The Elliott funds' investors include pension plans, sovereign wealth funds, endowments, foundations, funds-of-funds, high net worth individuals and families, and employees of the firm.

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