Blue Coat Buys Packeteer for $68M

April 23, 2008

Blue Coat Systems has signed a definitive agreement with Packeteer under which Blue Coat will acquire Packeteer for $7.10 per share in cash, or approximately $268 million. The acquisition is expected to be accretive on a non-GAAP basis in the second full quarter of combined operations.

“WAN optimization is the starting point for adding the next layer of intelligence to the corporate network,” said Brian NeSmith, president and chief executive officer, Blue Coat Systems. “The acquisition of Packeteer will enable us to extend our leadership in solving branch office application performance challenges and addressing security threats by adding an extensive, experienced sales channel, integrating our sales organizations and by reinvigorating the well-regarded PacketShaper product and adding it to our solution set. At the same time, we will begin to aggressively integrate Packeteer technologies with our own to continue building the next critical layer above the router.”

Packeteer is a pioneer in network traffic prioritization and shaping and holds an extensive patent portfolio in these areas. Its technologies enable the identification of specific applications over the WAN and will enrich existing Blue Coat application intelligence technology. Packeteer has over 10,000 customers worldwide and an installed base of over 50,000 units. By acquiring Packeteer, Blue Coat will add 50 additional sales teams and over 1,400 channel partners to extend its reach into the WAN optimization market.

“Blue Coat has a proven history of efficiently and effectively integrating technologies and organizations, and can expeditiously add valuable Packeteer assets to Blue Coat solutions and operations upon closing the transaction,” said Dave Côté, president and chief executive officer of Packeteer. “We believe our customers and channel partners all benefit from this move which results in having a more comprehensive solution for solving the application delivery challenges through advanced application discovery and the intelligent prioritization, security and control of business traffic across the WAN.”

Added NeSmith, “Given the size of our respective global organizations and the complementary nature of our businesses, we will achieve substantial cost reductions and significant economies of scale almost immediately. Adding Packeteer’s technology, expertise, channel partners and customer base will give Blue Coat a decisive competitive advantage that will help drive future business.”

The acquisition will be effected through a tender offer for all of the outstanding shares of Packeteer, followed by a merger between Packeteer and a subsidiary of Blue Coat. The transaction is subject to customary conditions and is expected to close in the second quarter of calendar 2008.

Blue Coat will fund the acquisition through a combination of available cash and an $80 million convertible notes financing.

Blue Coat Systems has agreed to issue zero coupon convertible notes, in the aggregate principal amount of $80 million, to Francisco Partners II, L.P. and an affiliate of Elliott Associates, L.P. (the “Purchasers”) in a private placement. Blue Coat will use the proceeds from the private placement to partially fund the acquisition of Packeteer, Inc. (see separate press release also issued today). The issuance of the notes is subject to the closing of the Packeteer transaction.

The notes are due in 2013 and will be convertible into shares of Blue Coat common stock at the holders’ option at any time prior to maturity at an initial conversion price of $20.76, which represents a 5% conversion premium based on the closing price of Blue Coat’s common stock of $19.77 per share on April 18, 2008. The notes will not bear interest. In connection with the issuance of the notes, Blue Coat has agreed to issue to the purchasers warrants to acquire 385,000 shares of Blue Coat at the initial conversion price of the notes.

Elliott Associates will terminate its previously announced tender offer for all of the shares of Packeteer and has agreed to sell its 9.9% interest in Packeteer to Blue Coat at the same price Blue Coat will offer to Packeteer shareholders.

Blue Coat has offered the notes to the Purchasers in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. The Company relied on this exemption from registration based in part on representations made by the investors in the purchase agreement relating to the notes.

“The investment by Francisco Partners and Elliott Associates enables us to make a valuable investment to further our strategic objectives,” said Brian NeSmith, president and chief executive officer of Blue Coat Systems, Inc. “Adding Packeteer technology, expertise, channel partners and customer base will give us a competitive advantage that will help drive future business.”

“We are pleased to join with Elliott Associates to facilitate Blue Coat’s acquisition of Packeteer,” said Keith Geeslin, Managing Director of Francisco Partners. “We believe this acquisition will give Blue Coat a decisive advantage in the evolving market for WAN optimization.”

“We are excited to participate as an investor in Blue Coat Systems, a proven leader and innovator in the WAN Optimization and Secure Web Gateway markets,” said Jesse A. Cohn of Elliott Associates. “Packeteer’s industry-leading visibility and QoS technologies serve as a perfect complement to Blue Coat’s products and help solidify Blue Coat’s position as the clear market leader in this rapidly growing space.”