Ethernet equipment

Lucent Gets Riverstoned

The struggles of Riverstone Networks Inc. (OTC: RSTN.PK) might finally be ending, as Lucent Technologies Inc. (NYSE: LU) has signed a deal to essentially buy the company for $170 million in cash.

The deal, announced today, hinges on Riverstone filing a voluntary petition for Chapter 11 bankruptcy protection. Once that's done, the company would put its assets up for auction. (See Riverstone Sells Assets.)

Lucent has made what's called a stalking-horse bid, having already signed a purchase agreement to pay $170 million for Riverstone's assets -- including products, technology, and buildings -- at that auction. It's possible that someone else could step in with a larger bid, although that appears unlikely. The setup gives Riverstone a guaranteed minimum price.

All of Riverstone's 400 employees are expected to join Lucent.

Riverstone's press release notes the company has enough cash to continue operations but is doing the bankruptcy dance to take advantage of Provision 363 of Chapter 11 of the U.S. Bankruptcy Code, which allows for this kind of auction. "We're just able to complete the sale faster than we would have otherwise," a Riverstone spokeswoman says.

Riverstone officials were not available before deadline to elaborate on that statement.

The news sent Riverstone stock skyrocketing, up 43 cents (81%) to a whopping 96 cents. That gives the Riverstone juggernaut a market capitalization of around $125 million.

Lucent, which has been reselling Riverstone equipment, would pick up a line of Ethernet boxes that Riverstone says are crafted for carrier networks. Riverstone's flagship box is the 15008 router; its most recently released products include access routers for Ethernet and MPLS. (See Lucent Adds Riverstone to Roster and Riverstone Aims for Access.)

That could be a milestone for Lucent as the carrier Ethernet market continues to heat up. "This fills an important gap in Lucent’s portfolio and likely will give the company a No. 3 market share position when the acquisition closes in mid-2006," says Heavy Reading analyst Stan Hubbard.

So, is the deal worth it? Who knows? Riverstone hasn't filed formal quarterly earnings statements for the past several quarters, leaving its financial situation murky.

The company has also worked under the shadow of an SEC investigation since April 2003 and has had to restate earnings for 2003 and 2004, in the process undergoing an audit that's delayed the earnings filings for all of 2005. Riverstone, already in financial trouble, sacked most of its senior staff and began reinventing itself as a carrier Ethernet specialist. (See SEC Calls on Riverstone, Riverstone Founders Resign, Riverstone Misses SEC Deadlines, and Riverstone Begins New Chapter.) That whole nightmare might finally be ending. Alongside the Lucent deal, Riverstone announced today that the SEC is considering a settlement with the company. (See Riverstone Gives Status.)

Riverstone was almost certainly losing money; it's just a question of how much. In November, the company said its break-even point had lowered to $30 million in revenues per quarter; at the same time, the company estimated it had shipped $16.1 million in hardware. (See Riverstone Claims Progress.)

Sources in the financial community have long assumed Riverstone would get bought out, with Lucent mentioned as a buyer multiple times last year -- but many believed Riverstone's absent financial reports were stalling any potential deals.

Heavy Reading analyst Rick Thompson, in his December 2005 report, "IP Video and the New Broadband Edge," noted that Riverstone, as a standalone, was not long for this world: "Riverstone is running on early success with carrier Ethernet, based on older RS-series products. It is continuing to get squeezed by the top players and cannot stand alone (and grow meaningfully) for more than the next year or two. Riverstone may need to be acquired or risk being systematically dismantled by stronger competitors."

It's worth noting that Lucent's buyout would not include Riverstone's cash or debt. The company reportedly has quite a bit of both. Its last 10-Q filing with the SEC, for the period ending November 2003, says Riverstone had $329 million in assets, $165 million of that in cash and short-term investments -- but much of that came from the November 2001 sale of $150 million in bonds that come due in December 2006. (See Riverstone Offers Notes.)

Assuming the deal goes through, Riverstone will wrap up its books by paying off its bonds, its $66 million in remaining debt, then it would disperse the leftover cash to shareholders.

— Craig Matsumoto, Senior Editor, Light Reading

brahmos 12/5/2012 | 4:06:33 AM
re: Lucent Gets Riverstoned you are a cruel man Xanthus.
xanthus24 12/5/2012 | 4:06:34 AM
re: Lucent Gets Riverstoned Working at Cabletron AND Lucent (Ascend). Talk about getting it at both ends...

flam 12/5/2012 | 4:06:34 AM
re: Lucent Gets Riverstoned "Westover will sell Bell's rodent control product line and manage the sales and marketing team."

At least they are focusing on markets with strong growth potential.

And no shortage of test subjects to try the products on.
russ4br 12/5/2012 | 4:06:40 AM
re: Lucent Gets Riverstoned This should explain the situation at Bell Labs:

"Westover will sell Bell's rodent control product line and manage the sales and marketing team."

At least they are focusing on markets with strong growth potential.
brahmos 12/5/2012 | 4:06:43 AM
re: Lucent Gets Riverstoned I assume Bell labs is still part of LU ? what is the employment situation in holmdel and murray hill - do they still recruit the "best n brightest" Phds or headcount is drastically reduced from the old days?

fiberous 12/5/2012 | 4:06:43 AM
re: Lucent Gets Riverstoned This should explain the situation at Bell Labs:


got_light 12/5/2012 | 4:06:46 AM
re: Lucent Gets Riverstoned Fiberous,

Dude... That was hilarious... Guess u were or know a LUser pretty well.

Cheers and Carpe Noche!

Got Light?
fiberous 12/5/2012 | 4:06:48 AM
re: Lucent Gets Riverstoned LU is old, senile and tired.

Look, Cascade, Ascend, Stratacom/Cisco,
Juniper all have raveged LU. There have
also been the eternal 'Stingers' that caused
further havoc. LU is an old flabby bag.

However, the last 2 two years were
quite interesting becuase it was recent
and obviously stupid.

First Cisco got them to sell Stratacom's ATM
gear. Then they laid off all these guys and
had poor LU pick up these folks as consultants
for a huge and hefty fee. This is when MCI's
frame service integration was in disaster
and everyone remembers it.
But LU was the scape goat. Not Cisco.

LU then financially started up cleaning up its
debt and tried to bring up its shares. After
Bell labs and Avaya were shorn it left LU
stark ( :) ) open. Then they started hiring
bozos. First came the guy from Cosine, ex-SGI.
The macho man who thought design a RISC chip
was a bigger turn-on than getting a BRAS
working at reasonable price. This guy used to
work out of Sunnyvale or NJ company! Guess
what he focused on? CASCADE' old CBX line.
Truly ours only knew one dish. Giving a bunch
of ATM, Ethernet switches another life can
appear to folks on the East coast as a savior.
But you are a dead duck full of lead.

Next came Cellular deals. Cisco got these
LU again by selling CATs and blades
that had BST and MSC functionalities.

Then came Juniper with its story of Navis
integration. This was like can I use your make
up to go and date your husband. Dude, is this
an old bag or what!

The story continues...but the horizon is getting
closer...its crash and burn for this American

Ethernet to LU is like Ciggarates for the young
kid who just decided this is popular and gets
him into big league.
They will inhale this and puke a little. Then
they will figure out they have to get rid of
this. By then they will be sick and die.

There is a saying in the industry the LU is
Cisco's Bitc&. It supports all its installations
and can never make a new product innitiative
before checking with Cisco of following it.

flam 12/5/2012 | 4:06:48 AM
re: Lucent Gets Riverstoned http://www.effectivemeetings.c...

Thanks for posting this - it reminds of my Luser days - but each suggestion here is the exact opposite of what used to happen in a Luser meeting!

brahmos 12/5/2012 | 4:06:49 AM
re: Lucent Gets Riverstoned http://www.effectivemeetings.c...

Managers at Cabletron Systems (Rochester, NH.) have mastered the art of the stand-up meeting GĒō no seats, just solutions.
chip_mate 12/5/2012 | 4:06:50 AM
re: Lucent Gets Riverstoned Yes it was brutal. The management were high on themselves, like their competition Cisco and Wellfleet at the time, but unlike those two Cabletron was run by a madman.

Ask around about a couple of stories.

Machine Gun for one.

Hauling off a bank's ATM machine with a truck and a chain down the street, to show displeasure at losing a deal.

A Tank for three.

Just imagine if Bill Gates was Howard Hughes. Microsoft would have won for a while then it would have imploded.

For more similar history google PKZIP and their founder. Money pouring in. Founder loses his mind in the process. Company implodes and closes more than once while boxes of checks are still arriving in the mail on a daily basis.
photon2 12/5/2012 | 4:06:54 AM
re: Lucent Gets Riverstoned Sorry Metroman, did not mean to confuse...Riverstone does not sell to Enterprise.

I was merely trying to say that other switch vendors do ship some % into SP networks, but a decent portion of that goes into internal SP networks, and not for Ethernet services. Sorry for any confusion.
metroman 12/5/2012 | 4:06:55 AM
re: Lucent Gets Riverstoned Photon

It seems to me that Riverstone only target SPs. Where do you get the information that Riverstone sells to enterprise - I think you might be confusing them with Enterasys. They were meant to be the enterprise spin-off of Cabletron.

WildRumpus 12/5/2012 | 4:06:56 AM
re: Lucent Gets Riverstoned The rumor mill had LU sniffing around other players including Atrica. Guess they were just doing market due dilgience. it's almost inconceivable that they would survey the market and conclude that this was the cleverest way to get into this space: pay up for a cash-sucking has-been with a dysfunctional culture. LU must either think they are playing it safe or the other players are in even worse shape.
fgoldstein 12/5/2012 | 4:06:57 AM
re: Lucent Gets Riverstoned I never worked at 'tron, but did meet a lot of them, and yes, their work culture was "famous". It was hard-core machismo, leaning towards sweatshop. For instance, they held meetings in chairless conference rooms (only wimps ever need to sit down). They also fired engineers for showing up late to work, even though the type of work they did rarely had a time element, and most of the other tech companies had a very loose flex-time policy (lots of people showed up after 9 AM, but lots stayed late too).

I taught continuing-ed classes (telecom subjects, like ATM) in the early 1990s for a local university. Most companies reimbursed the tuition. But 'tron only reimbursed if the student got an A- or higher. I had a bunch of them and felt guilty grading their exams (though they generally did well, and our grading scale cleverly used B- for flunking, B for just barely getting by).

A large share of their employees were Indian, on H1B visas, mostly quite young, and apparently their salaries were significantly below prevailing levels, too.
brahmos 12/5/2012 | 4:06:57 AM
re: Lucent Gets Riverstoned did the old cabletron in NH (around 97) have a very tough work culture ? I have met alumni who were complaining about it.
photon2 12/5/2012 | 4:06:58 AM
re: Lucent Gets Riverstoned What you have to keep in mind, is that many of the 'Enterprise' switches actually go into the internal networks of providers, and it's a pretty large number. So when you see revenues of $100M/qtr, and ~20% is supposed to go into SP networks, you have to assume some of that is 'internal' and not used for Ethernet services. Now, having said that, there are some vendors who's shipments to SP's are almost entirely for infrastructure services (Atrica), and this really does not pertain to Riverstone.
brahmos 12/5/2012 | 4:07:00 AM
re: Lucent Gets Riverstoned rstn has been hiring like mad in bangalore last few months. they have atleast two rented premises here and a bigger office is being constructed. I did visit and interview with them sometime ago but quickly made an exit from intview process once I saw the sheer physical chaos there. its like 200 people in one room with tiny call center type desks talking and coding all at the same time. add in the cellphone rings and any form of quiet thought is impossible. there were people using conference rooms for offices. best of all the pantry and dining area were in the same large "great hall of the people". and no manager was available to intview me coz "they are all busy with critical customer cases" lol

whoever expects their next gen "bleeding edge" MPLS products to be delivered and supported from the outfit I saw should have nerves of steel. the avg age of the 150 people I saw was < 25 yrs.

I hear bangalore lucent is another temple of chaos and office politics. they should fit right in :-)

jepovic 12/5/2012 | 4:07:00 AM
re: Lucent Gets Riverstoned In Business 101 you learn that any business needs focus. You can't do a little bit of everything, because you will be out-competed everywehere.

LU is all over the place already. In almost every field they have a product, but never the best product. This is one of the key reasons they are dying.

The idea that carriers put a great value in buying everything from one vendor is just BS. They look for the best products, preferably from a trusted vendor. Yes, it's nice to keep the amount of vendors low, but that's not gonna make me buy inferior stuff. Look at BT's 21CN - classic cherry-picking!

LU should try to reinforce whatver strengths they have instead - perhaps CDMA or IMS.

Oh, RS a leading metro provider - LOL...
fiberous 12/5/2012 | 4:07:01 AM
re: Lucent Gets Riverstoned Shatanu's gamble has paid off. Good job Shantanu!

Riverstone did what is typically called the three
card trick on New York streets. Now you see it,
now you dont. It is very difficult for the player
to get net gains from the dealer in this game.
However, the frst winning is what gets the
player excited.

Riverstone first moved most of the developement
crictical Lucy to India. There they operated
under a different name and without any sign
that even hinted this was a Riverstone opeations.
Something called "crystal...something."
Th senior managers managed Lucy's expectation
and got her hot.

This was not easy. Lucy wanted some specific
things that had to do with the nuances of their
DMX installed based. These features were not
the priorities of their product management folks
in the USA. To get the USA PLM monkeys off their
back the development was moved to India. They
were kept clueless.

The clothes are off and the deed is about to
start. I do feel that Lucy will be unhappy
because eventaully this will be a qucik
withdrawl. The way in which the facade is set s
almost akin to the medicine lasting no more than
an hour and so the exit has to be quick!

For the Riverstone guys this is the window of
opportunity to do a qucik getaway and get this
whole business behind them. Lucy is clue less
and does not know who to manage acquiring this
IP and evolving it further. Obviously, Riverstone
is exactly looking for someone who will let the
people of the hook.

BTW, the whole argument that Riverstone is the
best in Metro Ethernet services is hogwash.
They have good slides, whitepaper, but their system is in bad shape.
AMCC has screwed them like everyone else.
Without your own ASICs this is a tough game to
play against Cisco and Juniper.
The performance issues are bizarre and humourous.

Riverstone is a case where it was good technology
to start with and bad marketing. In the end it
was great marketing and salesmanship and crappy
technology. We see these sort of thing from Bill
Gates' days.
Iipoed 12/5/2012 | 4:07:02 AM
re: Lucent Gets Riverstoned Foundry already has established credibility in the Metro. Where you been?
light-headed 12/5/2012 | 4:07:02 AM
re: Lucent Gets Riverstoned #9 They had to buy Riverstone when they found out that their first choice, ungerman bass was no longer available. ;)

PS - you are kidding yourself if you think that the RSTN gear can compete with ALA, Cisco, Juniper or anyone else. 15M a quarter is nothing, nada, peanuts, squat. They have no end to end solution story. No integration story. No subscriber and policy managment story. I guess LU will give them some kind of access story now... of course they had a partnership for a while and it didn't really help. Next thing, you will tell me that Foundry or Extreme is going to be a player in IPTV and metro.
metrokid 12/5/2012 | 4:07:02 AM
re: Lucent Gets Riverstoned Riverstone is the only manufacter in the market with a technology able to compete with Alcatel and its Timetra boxes. Juniper is getting a niche player just with real products for the core. Therefore Riverstone would be a real option to go into the triple play deploiments. They are already inside of some Tier 1 and has proved that their products work.

If you see the customers where they are and the potential that they could give to Juniper then the answer is easy.
telecom_guru 12/5/2012 | 4:07:02 AM
re: Lucent Gets Riverstoned Another brilliant move by LU. Buying a money losing deal, with a new product line that is not cost effective, that has fallen behind in the MPLS-VPLS technology race, that has the worst executive leadership team ever assembled in the history of start-up land, ...and best of all... LU did it about 18 months too late... did you bother to notice that most of the original innovators are gone to places like JNPR ?

This deserves us starting the LR Article Talk Top Ten Reasons why LU's last ditch purchase of RSTN.PK is a dumb a a#%$ move...

I'll start with #10: They could not re-sell the stuff what makes them think they could sell the stuff?
lightreceding 12/5/2012 | 4:07:03 AM
re: Lucent Gets Riverstoned or if Juniper is looking at doing something else they could let this deal go through and given Lucent's history they know that another competitor will be swallowed and disappear forever in to the quagmire of Murry Hill.
Pete Baldwin 12/5/2012 | 4:07:03 AM
re: Lucent Gets Riverstoned So, what do you think? Should Juniper have tried to step in and grab Riverstone?

I suppose they still could, and grab Riverstone in the auction for more than $170M. (Lucent wouldn't say whether they're allowed to up their bid, if that happens.)
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