Om Malik was fed some reasonably good information the other night when he was told — and then told us — that WAN-optimization specialist Packeteer was on the cusp of being acquired by Blue Coat Systems or Nortel Networks. It turned out that the former indeed was the acquirer, with the deal announced this morning.
Blue Coat Systems said it will acquire Packeteer Inc. for about $268 million in cash, including issuance of $80 million in convertible notes to Francisco Partners II LP and to an affiliate of Elliott Associates LP.
The latter Elliott recently took an acquisitive run at Packeteer, a company in which it already had a 9.8-percent ownership stake, when it bid $5.50 per share or about $200.8 million. Obviously Packeteer declined that offer, apparently for good reason. Today’s bid values Packeteer at $7.10 per share, a premium of 15 percent on the company’s closing price Friday afternoon.
Om is right to categorize this acquisition as a consolidation play by Blue Coat, which is fighting a neck-and-neck battle against Cisco Systems and Riverbed in the WAN-optimization space. My contacts tell me Cisco is using its marketing and sales might to win share against its smaller rivals, putting Riverbed’s independence at question in the process. Caught in a bind, Blue Coat needed to find a way into more accounts while enhancing and extending its product portfolio. Packeteer, a company known for reasonably strong technology but relatively poor business execution, delivers on both requirements.
It probably still won’t stop Cisco from racking up a dominant market position, but Blue Coat felt it had to to something to fend off the seemingly inevitable.
Now the question is, what or who is next? Om’s source said Nortel was kicking Packeteer’s tires, but Nortel either failed to take action or lost out on the bidding. Nortel isn’t exactly in a position of strength at the moment, and I can’t imagine it paying $1 billion or more for Riverbed. It just doesn’t seem within the realm of immediate probability. Nortel might take out a smaller player, but . . . why? What would that get them? Does Nortel want to be an also-ran vendor in yet another market?
Juniper might take a run at Riverbed. It can afford to take the plunge and would benefit almost immediately from the deal.
Cisco is rolling right now in WAN optimization and can stand pat.