NEW YORK (AP) -- Shares of Riverbed Technology Inc. plunged nearly 20 percent Wednesday as investors reacted to the IT provider's plans to buy Opnet Technologies Inc. for $1 billion. Opnet shares soared 29 percent.
THE SPARK: Riverbed said Monday that it would buy Opnet for $43 per share — $36.55 in cash and 0.2774 of a share of Riverbed stock. Based on closing prices Friday, Opnet shareholders would receive a more than 33 percent premium on the value of their shares.
THE BIG PICTURE: Riverbed wants to buy Opnet to expand into helping customers manage applications and networks, and the acquisition could be a big boost to Riverbed's revenue.
The San Francisco company plans to combine the Bethesda, Md.-based Opnet with its Cascade business unit, and says the two together will generate about $250 million in revenue every year. Last year Riverbed, which is based in San Francisco, posted revenue of $726 million.
The acquisition is expected to begin adding to Riverbed's adjusted earnings next year.
THE ANALYSIS: The price values Opnet highly compared with similar companies, and the large amount of cash in the deal suggest that Riverbed wanted the company badly, said Jefferies analyst George Notter. He downgraded Riverbed to "Underperform" from "Hold" and lowered his price target by $3.75 to $16.25. He is worried that Riverbed wanted Opnet in part because a core business, wide-area network optimization markets, is slowing.
Riverbed's WAN business helps improve the performance of applications shared over computer networks — such as the networks that connect the computers of multinational corporations to one another.
Other analysts were more optimistic. Nomura analyst Stuart Jeffrey saw the company's diversification into a growing market as a positive. He added that the deal, while expensive, would significantly add to Riverbed's earnings next year and could help it cut costs. He has a "Neutral" rating on Riverbed.
THE SHARES: Riverbed shares dropped $4.26, or 19 percent, to $18.36 in afternoon trading. They've ranged from $13.30 to $30.73 in the past year.
Opnet stock added $9.37 to $41.47.