Disgruntled investors offer $200M for Packeteer

A hedge fund, unhappy with the WAN optimization vendor's financial performance, makes an offer to buy the company with or without Packeteer's cooperation.

A hedge fund that owns a minority stake in WAN optimization vendor Packeteer Wednesday moved to buy the company for about $200 million, either by negotiating with Packeteer management or through a hostile takeover.

Elliott Associates L.P. offered Packeteer $5.50 per share, disclosing its offer and unhappiness with management by publicly releasing its letter to the company's directors. Packeteer's shares were $3.86 at close Tuesday night and jumped up to $5.16 Wednesday morning before closing at $4.94. Together, Elliott Associates and Elliott International collectively own 9.8% of Packeteer common stock. The letter said if Packeteer's directors refused to negotiate, Elliott would make an offer directly to shareholders.

Packeteer released a terse statement Wednesday saying its directors will "evaluate this proposal carefully and promptly, consistent with its fiduciary duties and in light of the best interests of the company's stockholders."

The minority investors appear frustrated by Packeteer's inability to increase revenues and generate profit with its WAN optimization products.

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"We believe Packeteer's poor performance -- as reflected in the 37% decline of its stock price year to date and 67% decline over the past 12 months -- is the result of weak execution in terms of selling and developing its industry-leading products," said the letter, signed by Elliott analyst Jesse Cohn.

The offer comes after Packeteer's 2007 revenues declined slightly from the previous year, from $145.1 million in 2006 to $144.5 million. Product revenues fell 11% from $110.1 million in 2006 to $97.8 million last year. Packeteer reported a net loss of $25.6 million for the year.

Its rival Riverbed Technology Inc. reported $236 million in revenue last year, its first as a public company. Riverbed's revenue increased 126% year over year, and it recorded a $14.8 million profit for the year.

In its 10K annual report, Packeteer blamed its revenue decrease primarily on "a changing and increasingly competitive environment." It also cited a product transition with a greater focus on acceleration technology and delays in making product upgrades in the first quarter of 2007.

On Packeteer's earnings call with analysts Jan. 31, CEO Dave Cote said the problems were in the first half of 2007 and proclaimed, "We rebounded from a disappointing start in 2007 to achieve two sequential quarters of [non-GAAP] profitability and increasing revenue."

Despite Cote's optimism, Packeteer's revenue for the fourth quarter of 2007 decreased 4% year over year and it recorded a $12.2 million loss. Cote refused to give guidance for this year or future quarters on the call.

He did say he expects a boost from three new products: the IntelligenceCenter management platform launched last December, the Talon TC30 performance monitoring appliance launched in January and an upcoming enhancement to its Mobiliti software for mobile workers.

Cote also pointed out that Packeteer bolstered its executive staff in the second half of last year by hiring Ray Smets as vice president of worldwide sales and marketing, and Dave Winikoff as vice president of product management.

None of that satisfied Elliott Associates. In his letter, Cohn said Elliott has been asking Packeteer management for a meeting to discuss its concerns for a year without a satisfactory response.

"Despite our efforts, we have never received an invitation to discuss our thoughts with the board and, more importantly, the board has never formally addressed our concerns, which we suspect are shared by most of your other shareholders," he wrote.

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