Riverstone sale reaps $207m at auction
Lucent Technologies will be buying most of the assets of Riverstone Networks for $207 million if a bankruptcy judge approves the sale, the company has announced. The parties hope to close the deal in early April.
“We are pleased that our stockholders have realized greater value as a result of the auction process,” said Oscar Rodriguez, president and CEO of Riverstone, a spinoff company of the former Rochester-based Cabletron Systems, once New Hampshire’s largest employer.
Riverstone moved its headquarters to California shortly after the 2001 spinoff.
A last-minute bid by telecommunications giant Ericsson drove Lucent’s original bid up some $37 million. But the Swedish company eventually backed out of the bidding process after saying it considered the deal too risky for the price, a spokesperson said.
The exact terms of the new deal have yet to be disclosed, but even with the increased price, long-term investors will be lucky to get $1.50 a share, a little more than a tenth of what the stock was worth when it spun off from Cabletron in 2001.
At that time, Riverstone was considered a better bet than Enterasys Networks, which inherited most of Cabletron’s assets. Both companies, however, soon suffered from accounting scandals and federal investigations. Five Enterasys executives are now on trial for securities fraud. (A New Hampshire federal judge on March 20 threw out an attempt to dismiss some of the charges on technical grounds.)
A Securities and Exchange Commission investigation prompted Riverstone to restate its earlier earnings. It never filed any other audited financial statements, eventually causing the SEC to halt trading, shortly after the company filed for bankruptcy in February.
The filing was made in conjunction with the announcement of the intended sale to Lucent, a major Riverstone customer. Ericsson came forward with a $178 million at the March 16 deadline, the minimum amount above Lucent’s $170 million price in order to participate in the process.
The news caused Lucent’s stock price to drop, but Lucent emerged as the buyer at the March 20 auction. The bankruptcy court scheduled a hearing to approve the process on March 23.
Meanwhile, the bankruptcy court will be deciding on various motions put forward by Charles Grimes, a dissident Riverstone shareholder.
Grimes argued that the whole bankruptcy procedure was inappropriate, because the company still had money in the bank after paying off its creditors. But the company argued that it was burning through cash at the rate of about $8 million a month during the last two months and was down to its last $18 million.
Official committees for both the shareholders and the creditors opposed Grimes’ motion, so it seemed unlikely to succeed, especially in light of a firm offer that is contingent on a bankruptcy sale.
The shareholders’ committee did echo Grimes’ concerns over the firm’s apparent rush to give out as much as $6.5 million in bonuses – most based on performance – to its top executives and key employees, in order to “maintain the morale” of the company.
The equity committee argued that since Lucent will be inheriting the company’s workforce, it could pay the bonuses. The committee also wanted to look into any separate executive severance-pay deals, and examine the basis for granting of any performance bonuses to the executives of the bankrupt company.