Elliot Associates Discloses 6.3% Stake in Packeteer; Seeks Sale of Company

May.25.07 | About: Packeteer Inc. (PKTR)

Elliott Management Corporation manages the Elliott Associates, L.P. hedge fund and its offshore equivalent the Elliott International, LTD hedge fund. The firm uses an opportunistic approach and invests in different types of vehicles depending on market conditions including common and preferred stocks.

The firm tends to focus on distressed opportunities in industrial stocks, real estate, emerging markets debt, and private placement convertibles. The firm often takes an active role in its investments, seeking to unlock shareholder value. Elliott uses relatively little leverage.

On May 24, Elliott Associates disclosed a 6.3% stake in Packeteer (PKTR) in a SC 13D filing. Elliott believes the PKTR Board should be directing its attention to a prompt sale of the Issuer. Here is an excerpt from the filing:

The Reporting Persons expressed to the Board their views that: i) the Issuer has leading technology in one of the fastest growing segments of the networking market, but has proven unable to capitalize on such technology; ii) the business segment in which the Issuer operates is becoming increasingly competitive; and iii) the Issuer's technology may prove extremely valuable to a larger acquirer looking to enter the wide area network optimization market or to supplement its current product offering. The Reporting Persons believe that prompt action by the Board to commence a sales process is necessary.

Shares of Packeteer tumbled 27% April 4 after the company warned of a big revenue disappointment for the first quarter.

The company estimated that its revenue for the period totaled $31 million to $33 million, representing a roughly 25% decline from the fourth quarter. Previously, Packeteer projected that revenue would be flat to slightly higher than the $43.2 million it posted for the fourth quarter.

Analysts polled by Thomson Financial had forecast first-quarter revenue of $43 million. Wall Street currently expects earnings of 15 cents a share for the quarter.

"These preliminary revenue results are very disappointing," said Dave Cote, president and CEO of Packeteer, in a statement. "While they will also have a significant impact on our bottom line results for the first quarter, we remain optimistic about our long-term business opportunities."

Packeteer, which didn't give a reason for the sales shortfall, said that its vice president of worldwide sales, Arturo Cazares, has resigned after slightly more than three years with the company. Cote will assume management of the sales organization while the company searches for Cazares' successor.

PKTR sees Q2 sequential rev growth of 5-10%, or roughly $36.5-38.2 million $34.28 million Reuters consensus.

After reviewing the most recent quarter, we believe that the revenue shortfall resulted mostly from longer product evaluations and proof of concept trials performed by various customers... We believe this resulted from an increasingly competitive marketplace, and our inability to deliver several product enhancements to our acceleration product lines by quarter end. We currently expect to deliver these enhancements by mid May, and as a result expect a 5-10% sequential revenue increase in our upcoming second quarter.

Of interest here is the fact that Fidelity Management and Research as of April 30 owns a 10.8 percent stake in the shares of PKTR, and in the most recent quarter it increased its position by 423,000 shares. Next earnings release is expected Jul 19 after market close.

Disclosure: Author is long PKTR

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