Lucent buys Riverstone for $170M

Lucent Technologies agreed to buy the business operations of carrier Ethernet equipment vendor Riverstone Networks for $170 million in cash.

As part of the deal announced today, Riverstone will file for Chapter 11 bankruptcy, and Lucent will purchase its assets in auction. The deal does not include Riverstone’s cash or its convertible subordinated notes.

“The total consideration for the assets may increase or decrease based on any subsequent change in the value of the net assets as provided in the agreement,” Lucent said today in a prepared statement.

Following the acquisition, Riverstone intends to pay off its nearly $66 million in convertible debt and give the leftover cash to its shareholders, minus that set aside for “any contingent liabilities and costs of liquidation,” Riverstone said. As of August 27, 2005, the most recent date in Riverstone’s financial reporting, the company had cash and securities worth $120.3 million.

The deal is also contingent on the resolution of an ongoing investigation of Riverstone by the U.S. Securities and Exchange Commission. Riverstone revealed today it has offered to settle an anticipated SEC suit against it by consenting to the revocation of its stock listing on the “Pink Sheets.” The SEC is scheduled to consider that settlement offer later this week, Riverstone said.

“Riverstone proposed this settlement with the understanding that it would conclude all pending SEC matters against the company,” Riverstone said in a statement issued today.

In 2004, auditors found that the company’s employees had made “unauthorized side arrangements" and "unauthorized promises" to customers during its 2003 and 2004 fiscal years. In some cases, product sales were contingent on Riverstone buying debt or equity in customers or in third parties. Following the audit, the company reported making various policy and procedural changes to prevent such problems from recurring.

The two vendors expect the deal to close by the middle of this year, at which time Riverstone’s operations will become part of Lucent’s Multimedia Network Solutions group and “substantially all” of Riverstone’s 400 employees will become Lucent employees, the companies said.

Lucent announced a global reseller partnership with Riverstone in September 2004. The agreement puts Lucent into direct competition in the Metro Ethernet market with Alcatel, Cisco, Extreme Networks, Foundry Networks and others.