Riverbed Technology Inc RVBD.O rejected hedge fund Elliott Management Corp's $3.08 billion offer, increasing pressure on the network gear maker to deliver on its turnaround plans.
Riverbed said the offer did not reflect its success in turning around its business.
Shares of Riverbed, which also raised its fourth-quarter forecast above analysts' expectations, rose to $20.02, above Elliott's offer of $19 per share.
"Riverbed will continue to try to go it alone and execute on its strategy, but Elliott may increase its bid to a point that Riverbed finds acceptable," FBN Securities analyst Shebly Seyrafi told Reuters.
Riverbed's revenue missed analysts' estimates in the first three quarters of 2013 as the company struggles to integrate Opnet, a maker of software to manage traffic on networks, which it bought in 2012. The company had hoped the acquisition would help counter a slowdown in its main wide-area network optimization business.
Riverbed's shares have been languishing in the $20 range since late 2011.
Elliott declined to comment.
"We now see private equity getting involved in the process and possibly putting another bid in," said FBR Capital Markets analyst Daniel Ives, who values Riverbed in the "mid-$20s".
Analysts have said potential bidders could include larger rivals Cisco Systems Inc (CSCO.O) and F5 Networks Inc (FFIV.O).
F5 shares were up 3.6 percent at $97.92 in midday trading on the Nasdaq on Wednesday.
Elliott, run by Paul Singer, first disclosed a 9 percent stake in Riverbed in November, and offered to buy the company last week.
The hedge fund holds a total stake of 10.4 percent in the company.
Riverbed forecast first-quarter revenue of $262 million-$268 million, above analysts' average expectation of $258.5 million.
It estimated fourth-quarter adjusted earnings of 30-31 cents per share on revenue of $284 million to $285 million. Analysts on average were expecting earnings of 26 cents per share on revenue of $273.3 million, according to Thomson Reuters I/B/E/S.
Elliott has trained its guns on network equipment companies in recent months, building up stakes in two top firms.
Earlier this week, the hedge fund urged Riverbed rival Juniper Networks Inc (JNPR.N) to buy back shares, start paying a dividend and consider slimming down.
Goldman Sachs is financial adviser to Riverbed. Wilson Sonsini Goodrich & Rosati is legal adviser.
(Additional reporting by Supantha Mukherjee in Bangalore; Editing by Joyjeet Das and Sriraj Kalluvila)