* Asks co to review security, switching businesses
* Says Juniper should buy back shares worth $3.5 bln
* Says Juniper should cut R&D costs by $420 mln a year
* Analysts say cost cuts feasible
* Juniper shares hit more than 2-year high (Adds Juniper's response, updates shares with closing price)
By Neha Alawadhi and Lehar Maan
Jan 13 (Reuters) - Hedge fund Elliott Management Corp urged network equipment maker Juniper Networks Inc to buy back shares, start paying a dividend and consider slimming down, less than a week after it offered to buy Juniper's rival, Riverbed Technology.
Juniper shares rose as much as 10 percent to $25.95 on Monday, their highest in more than two years. The stock has been stuck in the $20 range for two years, a far cry from the high of $228.50 it hit during the dotcom boom.
The hedge fund, run by Paul Singer, said the "undervalued" stock could be worth $35-$40 if Juniper implemented its suggestions and focused on revamping its core business of making routers and switches for mobile carriers such as Verizon Communications Inc and AT&T Inc.
"We think Juniper is listless currently and a deep round of cuts is justified," Needham & Co analyst Alex Henderson said.
Elliott said Juniper should start paying dividends and buy back shares worth $3.5 billion, or nearly 30 percent of its market value as of Friday's close. The 18-year-old company has never paid a dividend.
The fund, which owns 6.2 percent of Juniper, also asked the company to review its security and switching businesses, where it was losing market share.
Juniper shares closed up 7.6 percent at $25.32 on the New York Stock Exchange. Riverbed Technology Inc closed down 0.7 percent at $19.79, while F5 Networks Inc closed up 4 percent at $92.01 on the Nasdaq.
"Juniper's assets are valuable and strategic and that the business possesses several fundamental upside drivers over the medium-term but that its future will be increasingly difficult if Juniper continues with its existing strategy," Elliott said in a letter to the company. (link.reuters.com/puc95v)
"Elliott's presentation was received this morning and we have not had any discussions with Elliott with respect to its content," Juniper said in a statement adding that it intends to review the offer "carefully."
Elliott said the company could save as much as $420 million a year by cutting its research and development spend to match those of its peers such as Riverbed and F5 Networks.
Analyst Henderson said Juniper's stock would rise meaningfully if the company were to achieve even half of that cost savings.
The hedge fund noted that Juniper paid its software engineers more than Google Inc, Facebook Inc and even Cisco Systems Inc, the world's largest network gear maker.
Elliott said in November that Riverbed's stock was significantly undervalued, and last week offered to buy the company for about $3 billion in a move that analysts said was likely to trigger higher bids.
Reuters reported in February last year that Juniper was reviewing its enterprise-focused networking business after talks fell through in 2012 to sell assets, including its security unit NetScreen Technologies.
Goldman, Sachs & Co is Juniper's financial adviser, while Wilson Sonsini Goodrich & Rosati is its legal counsel. (Additional reporting by Aurindom Mukherjee in Bangalore; Editing by Saumyadeb Chakrabarty and Savio D'Souza)