Ericsson Wants Riverstone

In a move as shocking as a 12th-seed upset, Ericsson AB (Nasdaq: ERIC) has made an 11th-hour bid for Riverstone Networks Inc. (OTC: RSTN.PK) , possibly unraveling the plans for Lucent Technologies Inc. (NYSE: LU) to acquire the struggling company.

Ericsson's bid of $178 million -- filed at yesterday's deadline -- tops the $170 million that Lucent had agreed to pay. The two are set for a showdown in New York on Monday, March 20, at 10:00 a.m., when Riverstone's assets officially get auctioned out of bankruptcy. (See Riverstone Gets $178M Ericsson Offer and Lucent Gets Riverstoned.)

The bid "is part of our strategy to reinforce our position as a preferred business partner in fixed-network operations," an Ericsson spokeswoman says. Ericsson says it can't discuss specifics, but Riverstone would bring in routing technology and carrier Ethernet know-how, supplementing the wireline skills of the recently acquired Marconi Corp. plc . (See Ericsson Buys Bulk of Marconi.) This might explain the rumor, earlier in the week, of Ericsson wanting to acquire Juniper Networks Inc. (NYSE: JNPR) Riverstone provides technology from the same sphere, with a deeper Ethernet bent, for less than the tens of billions that Juniper would command. (See Analysts Dismiss Ericsson/Juniper Talk.)

Riverstone received no other offers, although Lucent will be allowed to up its bid.

In February, Lucent announced an acquisition plan hinging on Riverstone's filing for bankruptcy protection. (See Riverstone's Bankruptcy Begins.) The idea was for Lucent to take Riverstone's assets in the resulting auction and hire back most of the 400 employees. With Riverstone's valuation floating around $125 million, Lucent's declared bid of $170 million looked like more than anybody else would pay.

Aiding Lucent's case was the fact that Riverstone's financials are a train wreck. The publicly traded company is still catching up with earnings restatements and hasn't filed a proper quarterly report since 2004, factors that were expected to scare other bidders. (See SEC Calls on Riverstone and Riverstone Misses SEC Deadlines.)

Riverstone released a few details in November, saying it had shipped $16.1 million in hardware the previous quarter but that its break-even point would be $30 million in revenue. (See Riverstone Claims Progress.) At the time, Riverstone had $120 million in cash but $65.9 million in debt. The Lucent plan had Riverstone paying off the debt before getting acquired.

So, why does Ericsson want a piece of this? It might have to do with the battleground of IPTV. Riverstone's boxes play "a key role both in [Lucent's] IMS roadmap and in its plans to greater capitalize on the IPTV market opportunity," wrote Prudential Equity Group LLC analyst Inder Singh in a note issued this morning. "Ericsson competes in both of these markets as well and would therefore have a similar interest in Riverstone's technology, we believe."

Does Ericsson's move start a bidding war with Lucent? As with the NCAA basketball tournament, we all just have to wait for the next round. A Lucent spokesman says only that his company will monitor the proceedings and act accordingly. "We think we made a fair bid," he says.

— Craig Matsumoto, Senior Editor, Light Reading