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Packeteer spurns Elliott, in talks with other suitors

Packeteer rejects an offer from hedge fund investors and adopts a poison pill while negotiating with other potential acquirers. But the original suitor still wants to make a deal.

WAN optimization vendor Packeteer Inc. has rejected a $200 million offer from a hedge fund that already owns a partial stake in the company and revealed in an SEC filing that it's involved in acquisition talks with two other companies. However, the rejection failed to dissuade the hedge fund -- Elliott Associates L.P. -- from attempting to purchase Packeteer.

Elliott offered Packeteer $5.50 per share in early March, disclosing its offer and unhappiness with management by publicly releasing its letter to the company's directors. Collectively, Elliott Associates and Elliott International own 9.8% of Packeteer common stock. In a Schedule 14-D filing with the SEC Tuesday, Packeteer reveals details of an extensive correspondence with Elliott representatives that began last May. However, the company revealed in a press release late Tuesday afternoon that its board of directors had unanimously rejected the offer.

Packeteer also adopted a poison pill, or what it calls a "shareholder rights resolution," that gives each shareholder the right to purchase one share for each purchase held. The poison pill would dilute the voting power of any person or group that acquires 15% or more of Packeteer stock without board approval. The resolution goes into effect April 14 and lasts through next March 31, unless Packeteer terminates it before then.

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Elliott analyst Jesse Cohn today dashed off another letter to Packeteer – released publicly – stating the hedge fund company remains interested in negotiating an acquisition. "We were extremely disappointed to have read in your press release [and SEC filing] that you have advised shareholders to reject our offer and that you have instituted a poison pill," the letter said, adding that Elliott sent a merger agreement Tuesday to Packeteer's attorneys.

Cohn also took exception to the way in which Packeteer characterized Elliott's previous offer. "You described our offer as coercive and illusory. This description is disingenuous at best. Our offer and the transaction set forth in the draft merger agreement we sent to you provides a level of certainty far in excess of the alternatives you described to your shareholders …" he wrote.

Sales of WAN optimization products slow

Minority investors have been frustrated by Packeteer's inability to increase revenues and generate profit with its WAN optimization products. "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," according to Elliott's letter signed by Cohn.

In its statement, Packeteer claimed it had talks with 10 potential acquirers since last May 18. According to the statement, one suitor submitted a preliminary proposal for a stock-for-stock business transaction March 5. That initial offer was lower than the amount proposed by Elliott, but the suitor has since submitted a revised nonbinding proposal for an all cash acquisition worth more than the Elliott offer, according to Packeteer's filing.

Packeteer said another suitor came on the scene March 13 and submitted a draft acquisition agreement March 30 at a price above the one offered by Elliott.

Although there have been many acquisitions in the WAN optimization space in recent years – including Packeteer's acquisition of rival Tacit Networks – it's not clear if any established technology vendors are chasing Packeteer. "My guess would be more of an equity type of firm who then can go in and clean up the mess and get them back on their feet and sell them as a whole or in pieces," said Greg Schulz, StorageIO Group founder.

Packeteer said another reason for turning down Elliott's offer is that it includes 15 conditions that must be met before the deal goes through, giving the hedge fund a great deal of freedom to kill the deal.

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