Riverbed Technology Has Investors Singing Cry Me A River (RVBD)

While the east coast battened down the hatches in preparation for hurricane Sandy, Riverbed Technology (NASDAQ: RVBD) opened its corporate wallet wide to purchase OPNET Technologies (NASADQ: OPNT) for $1 billion. Shareholders of OPNET will receive $36.55 per share in cash plus .28 shares of Riverbed stock for every OPNET share, or combined the deal equates to $43 per share. Riverbed will finance the cash portion of the acquisition with existing cash and new debt. The two companies expect the purchase to be completed on December 31, 2012.

Jerry Kennelly, CEO of Riverbed, said, “The addition of OPNET establishes Riverbed as the clear leader in the high-growth and converging application and network performance management market.” He also added that with the acquisition, Riverbed will be a $1 billion revenue company.

Apparently some analysts on Wall Street did not share Mr. Kennelly’s enthusiasm. Jefferies downgraded the stock to “underperform” from “hold” with a price target of $16.25, citing what it considered as a negative risk/reward environment due to the acquisition. Analysts at Robert W Baird lowered their rating on Riverbed shares to “neutral” from “outperform”. Comments coming from Needham and Company, however, sounded a positive note on the deal.

Having a few days to think on it, traders did not see a case for a lot of enthusiasm. Rested from a two-day unexpected vacation, sellers charged forward on the opening bell sending shares of Riverbed Technology $2.69 below the closing price on Friday to start the day at $19.93. After the opening print, the stock rallied briefly to a daily high of $20.00, but any buying excitement quickly dissipated. Before lunch, Riverbed shares hit an intraday low when they traded for $17.97. The stock drifted a little higher in the afternoon. At the end of the trading day, shares of Riverbed Technology logged a loss of 18% and closed down $4.15 at a price of $18.47. Over 18 million shares traded during the session, which easily eclipsed the 4.76 million shares traded on an average day.

A little over a week ago, share prices had gapped up by $2.00 after the company reported record third-quarter revenues and profits.

In late January, Riverbed Technology stock touched an annual high of $30.73. A few days later, the company issued a warning to investors that first-quarter results would fall below estimates. Riverbed made a similar cautionary note in April about second-quarter earnings, which caused the stock to fall over 25% in one day. The selling pressure did not abate until July when the stock touched a 52-week low of $13.30. A more upbeat tone to third-quarter earnings propelled share prices 75% higher from the end of July through last week.

Today’s action must have made shareholders feel like a person enjoying the taste of dessert and out of nowhere being punched in the stomach. The question is whether the OPNET acquisition and the gapping down of share prices today take the air completely out of the stock.

Riverbed Technology provides solutions for problems associated with IT performance across wide-area networks. The San Francisco, California, company was founded in 2002.

 

 

 

 

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).

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