Lucent seeks to buy Riverstone assets in bankruptcy reorganization

Riverstone Networks says it plans to sell off its assets for $170 million to Lucent Technologies as part of a Chapter 11 bankruptcy reorganization, the company announced Tuesday afternoon.

Both companies said they hope that the deal can be finalized this summer, but it partly hinges on whether the federal Securities and Exchange Commission accepts Riverstone’s proposal to reach a settlement in the agency’s investigation of alleged securities fraud. Riverstone wants the SEC to stop the probe in exchange for revoking Riverstone’s ability to sell stock. The bankruptcy court also must approve the sale.

The proposed sale Riverstone’s assets include most of the company’s products, property, contracts, receivables and accounts payable but doesn’t include Lucent’s cash, investments and debt. Most of the firm’s 400 workers are expected to join Lucent.

“We are extremely pleased and energized to join forces with an industry leader that we have admired and with which we have closely collaborated over the past year,” said Oscar Rodriguez, president and CEO of Riverstone, now based in Santa Clara, Calif. “We view this combination as a major win for our stockholders, customers, resellers and employees around the world.”

“Riverstone is a valued partner in a space that we believe will continue to grow,” said Ken Wirth, president of multimedia network solutions for Lucent. “This combination is good news for our mutual customers and a symbol of our commitment to provide carrier-grade ethernet solutions to the market.”

If the sale goes through, it will be the demise of the last public remnant of Cabletron Systems, a company that was once New Hampshire’s largest employer and was co-founded by former Gov. Craig Benson.

At its height, Cabletron employed more than 7,000 people in New Hampshire alone, but the company fell on hard times and in 2001 was split up into two public companies – Enterasys Networks and Riverstone Networks — in order to create what executives called shareholder value.

But stock in both new companies plummeted in value and they both shrunk their workforce, eventually abandoning New Hampshire. Part of their problems were due to investigations into charges that both companies fraudulently inflated revenue. Enterasys eventually settled with the SEC, though several former executives, including a CEO, pleaded guilty to fraud. Several other former Enterasys executives are scheduled to go on trial in March.

Riverstone never settled with the SEC, and although no criminal charges have been filed against the firm, recent filings in the Enterasys case show that the two probes may be linked. The Enterasys defendants are fighting attempts to introduce evidence concerning Riverstone into the Enterasys prosecution.

On Feb. 14, Enterasys investors are expected to vote on a deal to take their company private at a fraction of the price at the date of the original Cabletron spin off.

As for Riverstone, because of the ongoing SEC investigation, it has not filed its required federal financial statements for years, prompting the Nasdaq stock exchange to duelist the company, whose shares are now being traded on the pink sheets.

In unaudited releases, the company says it is losing millions of dollars every quarter, including $19.5 million in the quarter ending Aug. 27, 2005, bringing its cash and securities to $120.3 million.

It is unclear what the planned sale will mean to shareholders, but the initial reaction in the market was positive. The company’s share price shot up from 60 cents to $1 in the hour following the announcement. Riverstone shares were selling for more than $14 a share when it initially went public after being spun off from Cabletron. – BOB SANDERS

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