Riverbed Tech Shareholders Sue Over
'Self-Serving' $3.6B Sale
Law360, New York (February 06,
2015, 2:45 PM ET) --
Riverbed Technology Inc. was slapped with a proposed class action on
Thursday accusing executives at the San Francisco software company of
misleading shareholders in seeking approval of its recent $3.6 billion
take-private deal and of crafting illegal bylaws to quell any potential
challenge to the buyout.
The complaint, filed in a California district court, accuses Riverbed’s
board of directors of acting in its self-interest by approving its
December sale to Thoma Bravo LLC at $21 per share and
undervaluing the company to receive insider benefits. Board members are
now attempting to sway shareholders by obscuring the web of conflicts of
interest behind the process leading up to the deal, the complaint said.
“The only way defendants hope to convince Riverbed shareholders to endorse
the flawed and self-serving process and the inadequate proposed
consideration is to mislead them by disseminating to them a false and
materially misleading definitive proxy statement [in violation of the
Exchange Act],” the complaint said.
Plaintiffs have called the $21-per-share price “unfair,” citing Riverbed’s
market leading position and the board of directors’
February 2014 rejection of an offer at the same price from
hedge fund Elliott Management Corp. which the board described at the time
as “undervaluing the company and the company’s future.”
“Nevertheless, 10 months later, the board was willing to accept this exact
amount from Thoma Bravo, a long-time partner of Elliott,” the complaint
said. “The board accepted this amount despite knowing there were multiple
companies interested in acquiring Riverbed.”
The lawsuit pegs the $21-per-share price as a 5.8 percent discount from
Riverbed’s 52-week share price high of $22.28 on Feb. 28, 2014. It also
quotes Riverbed CFO Ernest E. Maddock explaining that the offering at $21
per share undervalued the company in comparison to its projected growth
The complaint lays out numerous alleged insider benefits, including a
two-year extension offer from Thoma Bravo to Riverbed CEO and Board
Chairman Jerry M. Kennelly, as well as the return from the sale of a
combined illiquid block of 5.47 million shares of Riverbed valued at $115
million belonging to the board of directors and company management.
“In addition, Riverbed’s officers and directors will receive millions of
dollars from the vesting of the stock options, performance units, and
restricted shares,” the complaint said. “With over $100 million on the
line, it is unsurprising that the individual defendants would favor a
Plaintiffs emphasized Elliot’s position as one of the largest Riverbed
stockholders, claiming it will receive over $253.6 million from the sale
of its illiquid shares. They also targeted the board’s selection of
Goldman Sachs & Co. as a financial adviser, saying they have
“repeatedly been involved in Thoma Bravo acquisitions, including serving
as the financing for buyers in one transaction.”
According to the complaint, the board agreed to pay Goldman Sachs and its
other financial adviser, Qatalyst Partners LP, “outrageous” contingent
success fees of $30 million each.
In attacking the definitive proxy statements, plaintiffs claim the
document omitted or misrepresented the “unfair and conflicted sales
processes” behind the deal, as well as the “inputs and assumptions
underlying the financial valuation analyses prepared by Riverbed’s
advisors” and the financial projections relied upon for those analyses.
Further, the lawsuit alleges that the board of directors enacted two
illegal bylaws to limit and potentially penalize shareholder challenges to
Plaintiff Seth Olson is represented by Brian J. Robbins of
Robbins Arroyo LLP.
Counsel information for the defendants was not immediately available. A
request for comment to Riverbed’s San Francisco headquarters was not
The case is Olson v. Riverbed Technology, Inc. et al, case number:
3:15-cv-00562, in the U.S. District Court for the Northern District of
--Editing by Patricia K. Cole.
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