Riverbed to boost network management with $1 billion Opnet buy

Mon Oct 29, 2012 12:56pm EDT

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(Reuters) - Network gear maker Riverbed Technology Inc (RVBD.O) will buy Opnet Technologies Inc OPNT.O, which makes software to manage traffic on networks, for about $1 billion to gain an edge over rivals that have all been hurt by weak tech spending.

Telecom service providers, the biggest customers for network gear makers such as Riverbed, Juniper Networks Inc (JNPR.N) and F5 Networks Inc (FFIV.O), have cut spending and are delaying orders.

But demand for wide-area-network optimization (WAN) products that boost data speeds over large networks, a business in which Riverbed is a market leader, has held up so far.

"With the WAN optimization market showing signs of renewed growth over the past few quarters despite choppy macro headwinds, we believe the addition of Opnet will further expand Riverbed's total addressable market over the coming years," FBR Capital Markets analyst Daniel Ives said.

Opnet, which focuses on application performance management —monitoring and managing the performance of software applications — is also seeing high demand for its products from the U.S. government and data centers upgrades.

"This acquisition also transforms Riverbed into a billion dollar revenue company," said Riverbed Chief Executive Jerry Kennelly.

The company will combine Bethesda, Maryland-based Opnet with its Cascade unit, which makes products that monitor network performance, and expects $250 million annual revenue from the combined business.

"This was the right acquisition at the right time for Riverbed. Opnet's application performance management (APM) technology is used in a wide range of verticals and geographies, and has a reputation for high quality," FBR's Ives said.

Opnet is expected to report $198.3 million in revenue this year, according to Thomson Reuters I/B/E/S.

Riverbed, which also competes with Cisco Systems Inc (CSCO.O) and Citrix Systems Inc (CTXS.O), forecast strong results for the fourth quarter earlier this month and analysts expect full-year revenue of $834.8 million.

"We have no intention of cutting or stopping any of the products they have," Eric Wolford, president of Riverbed's products group said on a conference call with analysts.

Riverbed said Opnet's CEO Marc Cohen and his brother Alain Cohen, who co-founded it, will join the company, but did not specify any position.

Opnet, which competes with CA Inc (CA.O), NetScout Systems (NTCT.O) and Compuware Corp (CPWR.O), has 673 employees.

The deal, which is expected to close before December 31, will add to Riverbed's 2013 adjusted profit, and the company said it expects "meaningful revenue" in 2014.

The $43 per share cash-and-stock offer represents a 34 percent premium, based on the stocks' Friday close.

Opnet shareholders will receive $36.55 in cash and 0.2774 of Riverbed's common stock for each Opnet share they hold.

Riverbed will initiate a two-step merger process to buy Opnet, which is expected to speed up the acquisition process.

In a two-step merger the buyer first makes a tender offer for all outstanding shares of the target company. It then buys the shares not already tendered, squeezing out the few shareholders who have not voted for the merger.

Riverbed will finance the transaction through cash at hand and a $500 million multi-year loan, it said on the call.

The company has received financing commitments from Morgan Stanley and Goldman, Sachs & Co. Goldman is also serving as the financial adviser to Riverbed, while Lazard is the financial advisor for Opnet.

(Reporting by Sayantani Ghosh in Bangalore; Editing by Joyjeet Das and Saumyadeb Chakrabarty)

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