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Riverbed Down 20% -- Does This Selloff Make Sense?

Shares of Riverbed Technology  (Nasdaq: RVBD  ) fell more than 20% in the aftermath of its $1 billion acquisition of OPNET Technologies  (Nasdaq: OPNT  ) .

Analyst opinions appear to be driving the action, which is amusing. Wall Street isn't universally bearish on the deal. Here's a rundown of what we've seen so far:

  • Jefferies & Co. downgraded the stock to "Underperform" on concerns that the OPNET acquisition reflects a "maturing" market for Riverbed's core WAN Optimization technology, which it views as a "structural negative" for the business.
  • Robert W. Baird cut its price target from $28 to $24 because the timing and cost of the deal, when viewed through the lens of a premium valuation and a weak macroeconomic environment, "don't allow much room for error," Barron's reports.
  • Sterne Agee was more sanguine, arguing the deal is a "net positive" that broadens the product line while deepening its relationships with lucrative Federal accounts.
  • William Blair was most positive of all, saying the move "marks" Riverbed's transformation into the sort of multi-product company management has promised to build.

I'm with Sterne Agee and William Blair; this is a complementary arrangement. Whereas Riverbed's core Steelhead business is to optimize the delivery of data across a geographically diverse private network, OPNET is best known for sniffing out problems with application performance.

Investors should know this isn't a new area for Riverbed. In 2009, the company acquired Mazu Networks and its suite of network monitoring tools, which have since been renamed Cascade. OPNET is to blend with Cascade in what CEO Jerry Kennelly described as an immediate $250 million business.

But that's in the short term. Longer term, there's a much bigger idea at work here: Build a suite for monitoring, and in real-time optimizing, the performance of private networks carrying ever-increasing amounts of corporate data.

OPNET advances the thesis every bit as much as last month's partnership agreements with Juniper Networks (NYSE: JNPR  ) and VMware (NYSE: VMW  ) . In each case, Riverbed is positioning itself as key to the increasingly important and complex business of sustaining high-speed data connections.

Weak quarterly results for peer F5 Networks (Nasdaq: FFIV  ) , announced in the wake of Riverbed's strong Q3, should reinforce this view. Tough macroeconomic conditions haven't slowed demand.

Nevertheless, the size and price of the OPNET deal had Baird and others balking even as they admitted the deal made sense. Ignore the noise. Buy on weakness and hold for the long term. If Riverbed's OPNET acquisition does indeed make sense, it will pay off every bit as much as management expects.

Or at least that's how we see it at Motley Fool Rule Breakers, where we've held tight on the belief that smarter, faster, more secure networks are inevitable in a world that's become dependent on digital access to data, goods and services, and entertainment wherever we may be.

Our analysts see one company making a killing from this wholesale shift to smart wireless devices. Do you know this disruptor? A free special report has the name and all of our team's research -- click here to get your copy instantly.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Riverbed Technology at the time of publication. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Riverbed Technology, VMware, and F5 Networks. Motley Fool newsletter services have recommended buying shares of F5 Networks, Riverbed Technology, and VMware. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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