After sale, Riverstone Networks stock payouts still unclear

The $207 million sale of the bankrupt Riverstone Networks to Lucent Technologies could not come soon enough for shareholders, many of whom are from New Hampshire and have been holding on to the stock since the company was spun by the former Cabletron Systems in 2001.

According to the company’s latest financial statements filed in bankruptcy court in Delaware, the company has lost about $10 million in net equity in the three weeks following the bankruptcy filing in February, leaving it with $17 million in the bank. During that time, the company spent nearly $2 million on professional fees.

No one knows how long it will take the court to settle up final details after the sale, nor how much they will get once everyone – including executives, as part of an incentive bonus program approved by the court – is paid off.

The company plans to submit a liquidation plan later this month, and it will probably be at least several months after that date before the money goes to shareholders.

Meanwhile, stockholders can no longer sell their shares on the open market. The Securities and Exchange Commission halted trading shortly after the firm filed for bankruptcy protection because the company never filed any accurate financial statements.

At that time trading halted the stock was trading a $1.07 a share. Observers are now hoping that, with the $207 million sale of Riverstone’s assets to Lucent, investors would get as much $1.50 a share, though that’s still roughly a tenth of what the share price was at the time of the 2001 spinoff.

Many stockholders said that they would prefer to get a piece of the new company created by the merger of Alcatel and Lucent that was announced over the weekend, but that appears unlikely.

Those who are getting nervous could accept a tender offer being circulated by Hold River LLC and Hedgehog Capital LLC, which holds a small stake in Riverstone, for 80 cents a share. The catch is that the stockholders could only get their money after the bankruptcy settlement is finalized. Not many shareholders appear to be jumping at the bargain, though Riverstone last week sent out a letter to shareholders saying they were neutral on the order – despite its uncertainties – because some stockholders might need the money.

Meanwhile, shareholders are waiting for another distribution: $18.5 million from a class action securities fraud settlement. That should come in the latter half of the year, according to The Garden City Group, the claims administrator. Again, shareholders won’t know what they will get, but the notice on CGC’s Web site identifies who should be getting the most. (The list is available at gardencitygroup.com/cases.)

Those who are still holding shares should get the highest payout. The recognized loss could be as much of $3.60 per share. But how much will shareholders see of it? Not even the attorneys know for sure.
– BOB SANDERS