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Cabletron gains after Silver Lake boosts investment

Cabletron Systems picked up 2 1/4, or 9 percent, to 27 Tuesday after Silver Lake Partners said it would pump another $25 million into the network-equipment maker, raising its stake in Cabletron's four subsidiary companies from 3 percent to 3.5 percent.

In February, Cabletron (NYSE: CS) said would split into four companies.

The new companies include Riverstone Networks, which will sell hardware to communications service companies; Enterasys Networks, for corporate data networking equipment; Global Network Technology Services, a network consulting and services firm; and Aprisma Management Technologies, a vendor of network management software.

At the time, Silver Lake Partners said it would purchase $65 million of Cabletron's preferred stock at a conversion price of $40 a share as well as 250,000 warrants to buy Cabletron shares at an exercise price of $45 a share.

"This transformation is consistent with the way we are approaching these markets today -- aligning our organization and resources to the customers we serve," said CEO Piyush Patel back in February.

The four units are currently Cabletron subsidiaries, but will eventually trade as separate entities and be spun out to Cabletron shareholders, the company said.

On Tuesday, Silver Lake Partners injected another $25 million for preferred shares with a conversion price of $30 a share as well as warrants to purchase another 200,000 shares of common stock at an exercise price of $35 a share.

"We continue to be excited by Cabletron's strategy," said David Roux, a principal of Silver Lake in a prepared release. "Our work with the Cabletron management team over the past several months has strengthened our belief in their ability to execute on their transformation strategy."

In March, Cabletron shares were cruising at a 52-week high of 52 3/4 before Goldman Sachs cut the stock from a "market outperform" rating to a "market perform."

The downgrade coincided with news the company would layoff 800 employees, or roughly 18 percent of its workforce.

Not surprisingly, Cabletron shares tumbled below $20 a share in less than three weeks.

However, Cabletron did manage to top analysts' estimates in its fourth quarter, earning $28.1 million, or 15 cents a share, on sales of $381.8 million.

First Call Corp. consensus expects it to post a loss of a penny a share in its first quarter and a profit of 7 cents a share in fiscal 2001.

Despite the recent shakeup and Silver Lake investments, Cabletron is rated a "hold" by nine of the 16 analysts covering the stock.