Cabletron executives on Tuesday detailed its plan to spin off Enterasys and also announced the final distribution formula for shares of Riverstone, which spun off from Cabletron with an initial public offering in February.
Riverstone, which makes networking equipment for telecommunications service providers, raised $120 million in its IPO in February, but Cabletron at the time retained an 86 percent stake in the company. Cabletron will now distribute the Riverstone shares it owns to its shareholders. Cabletron shareholders as of July 27 will receive half a Riverstone share for each share of Cabletron they own.
Enterasys, which sells networking equipment for businesses, will spin off from Cabletron and trade under the symbol "ETS" in the New York Stock Exchange on Aug. 6. Cabletron shareholders as of July 27 will receive one share of Enterasys for each share of Cabletron they own. The shares of Enterasys and Riverstone will be distributed on Aug. 6.
For the past year and a half, Cabletron has carried out plans to break its business into four separate operating companies and spinning them off. Besides Enterasys and Riverstone, Cabletron owned Aprisma Management Technologies, which makes software for managing the health of networks; and Global Network Technology Services, which offers consulting services for building networks.
Cabletron executives on Tuesday said Aprisma will initially become a subsidiary of Enterasys, but will spin off into its own independent company by year's end. Cabletron executives say they will either sell Global Network Technology Services or close the business.
As part of the plan, Cabletron will also dole out the brunt of its $960 million in cash and investments to Riverstone, Enterasys and Aprisma in exchange for shares of its spun off companies. Cabletron, in turn, is giving those shares to its shareholders.
After that, Cabletron will close up shop. Top executives, including Chief Executive Piyush Patel, plan to continue to advise the chief executives of the newly spun off companies.
"I'm extremely excited that we are entering the final phase of the transformation, delivering on the promises that we have made to our shareholders," Patel said in a press conference Tuesday.
Cabletron's demise is the end of an era. While its spun off companies will live on, the Cabletron name will not.
Once a highflier, the 17-year-old company in 1999 found itself getting trounced by the likes of Cisco Systems in the networking market. Cabletron had begun its decline several years earlier when it was slow to make the move to high-speed networking devices. And when Cabletron finally bought companies to round out its product family in 1998, it had already lost a sizeable chunk of its market share.
Patel, Cabletron's newly installed CEO at the time, decided in early 2000 to break the company into four independent companies as part of a turnaround strategy.
Patel's decision to give its cash to its spun off companies is a shift in strategy. The company last year was considering a plan to become a holding company and use its excess cash to invest in networking start-ups.
"We felt it was more appropriate for each of the new (spun off) companies to have their own cash, so they can invest in the areas of their target markets," Patel said in an interview Tuesday. "So instead of the parent company doing that role, the new companies will play that role."
The company last month reported first-quarter earnings that met Wall Street estimates. Cabletron reported a profit of $14.5 million, or 8 cents a share. First-quarter revenue rose from $217 million last year to $311 million this year.