Riverbed and OPNET — a Merger That Makes Sense

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Riverbed Technology Inc. (NASDAQ: RVBD) is trying to see if an acquisition can truly help the company get its growth back on track in a meaningful way for shareholders. Riverbed is using its $3.5 billion market cap to acquire the smaller OPNET Technologies Inc. (NASDAQ: OPNT) for its application and network performance management solutions for close to $1 billion in enterprise value. The formal terms come to $43.00 per share in cash and stock, which comes to an equity value of $1 billion and an enterprise value of $921 million. OPNET stockholders will receive $36.55 in cash per share and they will also received 0.2774 of a share of Riverbed common stock.

Riverbed will extend its network performance management business into the application performance management market and will move it into the converged market for NPM and APM with over $250 million in annualized revenue. The deal is said to turn Riverbed into a company with more than on billion dollars. That figure matters because the Thomson Reuters consensus estimates are $834.75 million and $962.2 million.

As far as what gets added here, the consensus estimates for OPNET are $198.35 million in this year’s fiscal sales and $228.55 million in next year’s fiscal sales. The OPNET transaction is expected to be accretive to Riverbed’s 2013 non-GAAP earnings, with more meaningful revenue and operating synergies in 2014.

Riverbed is financing this deal with existing cash on hand and new debt. OPNET’s market cap as of the close of Friday was $741.4 million, but the $32.10 share price compares to a 52-week range of $22.08 to $47.97.

Our question is not whether the companies should be doing this, but more along the lines of whether it is enough of a premium to where OPNET has traded in the past to get approved. Based on insider ownership and on the concentration of a few more large institutional holders, it seems likely that enough votes exist for this to close. That might not stop class-action suits, but that is another matter.

JON C. OGG

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