Blue Coat Plucks Packeteer for $268M

Blue Coat clinched an agreement to buy WAN optimization specialist Packeteer for $268 million this morning and plans to build the vendors PacketShaper software into its own Proxy SG appliances.

Under the terms of the deal, Blue Coat will acquire privately traded Packeteer for $7.10 per share in cash, totaling $188 million, plus $80 million in convertible notes.

Blue Coat will now build PacketShaper’s QOS, application classification, and traffic management features into its own hardware, according to Blue Coat CEO Brian NeSmith.

”We plan to upgrade our own Proxy SG operating system with the PacketShaper features by the end of 2009, offering our customers a single unified appliance,” he said during a conference call this morning. “Our custom OS should facilitate the integration of the technologies in a straightforward way.”

The deal, which is expected to close in the second quarter of this year, comes just weeks after Cupertino, Calif.-based Packeteer received an unsolicited acquisition proposal from Elliott Associates LP and Elliott International L.P. During this morning's call, NeSmith refused to give details of the competitive bids, but he was keen to portray the merger as the end of a period of instability for Packeteer, which brought on the Elliott proposal. The supplier has been struggling to swallow WAFs specialist Tacit and faces stiff competition from Riverbed and Cisco.

”No matter what we do with Packeteer’s existing products, we will be working hard with their customers to facilitate a migration from their platforms onto our ProxySG appliance,” added NeSmith, explaining that it is still unclear exactly how long Packeteer’s product line will be sold and supported as standalone offerings.

“We obviously need some work between now and the close to finalize a lot of those plans,” NeSmith said, but he added that Packeteer’s existing support agreements will be honored.

The exec also confirmed that some pieces of the Tacit WAFS technology, which Packeteer acquired for $78 million in 2006, will be built into the ProxySG hardware.

”We will selectively be moving different functionality from that platform onto ProxySG,” he said, admitting that Packeteer had a tough job integrating Tacit.Blue Coat, which offers both WAN optimization and security technology, now faces some integration challenges of its own in the shape of the 400-strong Packeteer workforce.

”We see a lot of cost synergies between the two companies, we believe that we can achieve significant cost reductions in the first two quarters,” said NeSmith, explaining that this will come from redundancies and savings in expenses and R&D costs.

”We see, definitely, a lot of redundancy in management overhead where we have a lot of common activity,” explained the exec.

Blue Coat nonetheless hopes to integrate Packeteer’s 50 sales teams into its own sales organization in an attempt to win revenue from Packeteer’s 10,000 customers and 1,400 resellers.

”We will actively engage in cross-selling to those customers,” said NeSmith, explaining that Blue Coat has already shifted the focus of its own 500-plus reseller base. “We have converted a number of our security-centric distributors and resellers to additionally focus on WAN optimization.”At this stage it is unclear whether the Packeteer CEO David Côté and the rest of his management team will be joining NeSmith in Sunnyvale, although Blue Coat confirmed in an email to Byte and Switch this morning that Packeteer’s facilities will now be consolidated with its own.

Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.