The Morning Brief: Elliott Makes Bid to Buy Riverbed Technology

Shares of Riverbed Technology surged 9.4 percent, to close at $19.53, on Wednesday after Paul Singer’s $23 billion hedge fund firm, Elliott Management, offered to buy the network-equipment maker for $19 per share in cash. Elliott’s two hedge funds, Elliott Associates and Elliott International, have an economic interest in 10.5 percent of the common stock of Riverbed, according to a regulatory filing.

The takeover offer also includes a so-called “go shop” provision that would allow the board to seek out other bids for the company for a specific period following a deal agreed upon with the hedge fund firm. “We are aware that numerous parties have expressed acquisition interest in Riverbed, and this structure guarantees that the company will secure a healthy premium for its stockholders while holding open the opportunity to obtain an even higher premium,” Elliott states in a letter to chief executive Jerry Kennelly. Elliott says the stock is way undervalued and promises to “devote considerable resources” to completing the transaction.

Another two hedge fund scorekeepers have weighed in with their calculations for 2013 performance. No matter who is doing the number crunching, however, they all agree on one theme: Hedge funds way underperformed most market indexes for the fifth straight year. For example, data tracker eVestment says hedge funds enjoyed their best year since 2010, posting an average gain of 9.2 percent last year, compared with 7.4 percent in 2012 and a loss of 3.1 percent the previous year. Equity funds fared the best, as one would expect, led by activist hedge funds, which rose 19.1 percent, easily beating their 15.2 percent gain in 2012. Credit strategies posted just a 6.26 percent gain, nearly half the 11.40 percent increase in 2012 but better than the 2.3 percent gain in 2011. Meanwhile, Chicago–based industry tracker Hedge Fund Research reports that its HFRI Fund Weighted Composite Index gained 9.4 percent last year. Other reports making the rounds show that the average hedge fund gained less than 8 percent last year.

MKP Capital Management named David Perez as a managing director and senior portfolio manager, focusing on global equity markets within the firm’s macro strategies. Perez spent 14 years at Goldman Sachs, most recently as a managing director on the equity derivatives trading desk in New York. Prior to that, Perez focused on global equity and options markets from London. New York–based MKP has more than $8.5 billion under management. Last year, MKP Opportunity, the $4.8 billion global macro fund headed by Patrick McMahon, finished up 7.09 percent. The $2.4 billion MKP Credit fund rose 11.15 percent last year.

Credit Suisse restaurant analyst Karen Holthouse shook up the hedge fund community on Wednesday, delivering more bad news to Greenlight Capital’s David Einhorn when she initiated coverage of Chipotle Mexican Grill. Einhorn is heavily shorting the Mexican casual dining chain, but Holthouse granted Chipotle an Outperform rating and a $620 target price.

“A growing willingness to drive traffic more proactively, as well as secular tailwinds, make us constructive on the near- to medium-term comp outlook,” Holthouse states in her report. Einhorn has been aggressively betting that Taco Bell will eat Chipotle’s almuerzo. Shares of Chipotle climbed 0.52 percent, to close at $535.85.

The same Credit Suisse analyst, meanwhile, initiated coverage of activist favorite Darden Restaurants with an Underperform rating. You may recall that last month Darden, seemingly in response to hedge fund Barington Capital Group, announced it will spin-off of its Red Lobster business to shareholders, stop expanding its Olive Garden chain and limit the number of new openings for LongHorn Steakhouse, with the goal to lower capital spending by at least $100 million annually. It also said it will stop making acquisitions.

The company said it will use the increased cash flow from reductions in capital spending and operating support expenses “to support” dividends, share repurchase and strengthening the company’s credit profile. Mitarotonda believes if his recommendations were fully implemented, Darden would be worth somewhere between $71 and $80 per share.

However, Holthouse set a target price at $50. “We believe activist involvement may have given shareholders false hope that Olive Garden and Red Lobster can be saved,” she states in her report. Interestingly, shortly before Christmas, Jeffrey Smith’s Starboard Value disclosed its owned 5.6 percent of Darden, calling the stock “deeply undervalued.” It also stressed that it opposed Darden’s plan to spin off Red Lobster, asserting it falls “significantly short of the actions required to maximize shareholder value.” Shares of Darden dropped nearly 2 percent Wednesday, to close at $51.61
More woes for J.C. Penney. Shares of the ailing retailer plunged 10 percent, to $7.37, after it failed to disclose any details about its holiday sales.

Shares of Microsoft fell nearly 2 percent after Ford Motor Co. CEO Alan Mulally publicly stated he has no plans to leave his current position to head up the software giant.