The final chapter in Cabletron Systems Inc.’s (NYSE: CS) rocky history was closed today as the company completed its name change and the spinoff of metropolitan area switching company, Riverstone Networks Inc. (Nasdaq: RSTN).

Cabletron, which had officially become a holding company for four separate networking companies last year, officially ceased operation and stopped trading on the New York Stock Exchange today (see Cabletron Spinoff Starts Trading).

As a result, shares of Cabltetron were officially converted into shares of Enterasys Networks Inc. (NYSE: ETS), Cabletron’s enterprise-focused switching company. The newly named company began trading this morning on the NYSE. Cabletron closed at $20.75 on Friday. After former Cabletron investors received the remaining Riverstone shares from the spinoff, Enterasys opened at $13.55 and closed at $13.96.

The spinoff means that all 99,205,992 Riverstone shares owned by Cabletron have been distributed to former Cabletron shareholders. Cabletron, which had controlled 87 percent of Riverstone's stock, will no longer own any shares in Riverstone, according to the 8-K filed by Cabletron with the Securities and Exchange Commission on July 30, 2001.

Today’s events mark the end of a troubled past for Cabletron, which emerged onto the networking scene in the early 1990s, but suffered from one misstep after another, losing market share to the then up-and-comer, Cisco Systems Inc. (Nasdaq: CSCO). By 1998, Cabletron had severe financial problems. Finally, in the spring of 2000 the company announced it would be splitting into four separate companies, each with a its own customer and product focus: Riverstone, focused on service providers in the metro area; Enterasys, focused on enterprise switching customers, Aprisma Management Technologies, focused on software customers, and GlobalNetwork Technology Services Inc. (GNTS), focused on network consulting. The idea was that each company would cater to customer needs in each of the specific market segments, resulting in increased shareholder value.

“Now that Riverstone and Enterasys are separated, we can continue to execute on our different market focus -- metro for Riverstone and enterprise for Enterasys,” says Andrew Feldman, vice president of marketing for Riverstone. “In terms of day-to-day operations, little has changed with the completed spinout. We havebeen acting as two separate companies for more than a year. This is just the legal recognition of something that had been in practice for 15 months.”

The original plan called for each company to go through the traditional spinoff scenario, which included an initial public offering. Riverstone was the first to take the plunge in February, raising $120 million in its first day of trading (see Riverstone IPO Toughs It Out). But as the IPO market has gotten increasingly chilly with each passing month, Cabletron execs decided to bypass the IPO route for Enterasys, deciding instead to just rename Cabletron. This was a smart move, according to Michael Weintraub, a senior research analyst for UBS Warburg who covers enterprise networking.

"You do an IPO when you need cash," he says. "But when you look at Cabletron’s balance sheet, they have plenty. They are well positioned going forward. I think it was the smart thing to do."

In its last quarterly filing in July, Cabletron reported that it had about $425 million in cash (see Is Cabletron Back?). Weintraub says that this is enough to sustain Enterasys as the company continues to expand its market share. Enterasys generated $232 million of the $308 million Cabletron reported as revenue, according to the filing. Enterasys has made good traction with new customers, adding 600 new ones this year with approximately 20 percent of its revenues coming from these customers in the last quarter, says the company.

But isn't Enterasys just Cabltetron with a new name slapped on the side? Weintraub says no. He says that the company is fundamentally different from the old Cabletron in two ways. For one, the company intends to keep its focus exclusively on the enterprise market, while competitors such as Cisco, Foundry Networks Inc. (Nasdaq: FDRY), and Extreme Networks Inc. (Nasdaq: EXTR) struggle to handle both customer bases. The second is that Enterasys seems to understand the need for open system architectures, a key issue that frustrated Cabletron customers throughout the mid-1990s.

"Enterasys really understands the value of the Internet and the importance of open systems,” he says. “I like them as a company and as a stock. Compared to their competition they are really undervalued."

Aprisma and GNTS are still subsidiaries of Enterasys for the moment. But the company has said that it plans to spin these off, too.

- Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com