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

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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.
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.
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.

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.
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.
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.
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!

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!

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