WE ARE OUT CS FOR NOW:
.
.
.
..
.=DJ GOING PUBLIC: Riverstone Warning Of Parent's Outlook
By Raymond Hennessey
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--There's always a certain tension between
parents and their children who are ready to leave the roost.
Even in the IPO market.
In the registration statement for its upcoming initial public
offering, Riverstone Networks Inc. has been forced to backtrack from
some statements made last year by its current parent, Cabletron
Systems Inc. (CS).
Cabletron is spinning off Riverstone in an IPO of 10 million shares
led by Morgan Stanley Dean Witter, slated for later this week. Price
talk is now $11 to $13 a share, below initial estimates of $12 to $14.
In the registration statement, filed with the Securities and
Exchange Commission, Riverstone warns that investors shouldn't rely
solely on statements made by Cabletron in press releases and
conference calls. For example, Riverstone cites statements in June
when Cabletron predicted 21% quarterly growth, gross margins over time
of between 58% and 62%, and a break-even on profits by the middle of
fiscal 2002.
Not so fast, Riverstone said. Because of "the inherent uncertainty
of financial projections, these projected results may be unattainable
or unrealized," the company warned in its SEC filings.
Cabletron at the time was looking at Riverstone as one part of a
broader business, and made assumptions that "may be incomplete or
incorrect."
A lot has changed since Cabletron first made its projections. During
the spring and summer, there wasn't the pervasive talk of a
broad-based economic slowdown, nor were there many economists
squabbling over whether or not the country was headed into a
recession.
Since Cabletron made its projections, many of Riverstone's
competitors, including Cisco Systems Inc. (CSCO), have warned of
earnings and revenue shortfalls because of the economic downturn.
There was one thing Riverstone points to where Cabletron was
flat-out wrong. In a conference call, Cabletron officials referred to
Riverstone as "the only vendor of a single-box solution that can
provision applications across T1 and T3 circuits" with "no
competition" in its core metropolitan markets.
Actually, Riverstone said in its SEC filings, there is at least one
other company in that very market and, overall, "we face intense
competition in the network equipment market" from companies like
Cisco.
A Riverstone representative didn't immediately return calls seeking
comment.
There's a precedent for the kind of caution Riverstone adopted.
Rules surrounding IPOs are fairly specific: SEC filings are the only
place investors should receive information about a company's IPO and
financials. Though the Cabletron statements were made before the IPO
was even filed, Riverstone needs to address them because they're
projections, and projections are normally a no-no for IPO documents.
The problem is that companies can find themselves in violation of
securities law if they make statements or projections in IPO documents
that turn out not to be true. This is part of the reason why new
companies go out of their way to cite as many potential pitfalls to
their businesses in the "risk factors" section of their SEC filings.
Many of the doomsday scenarios companies warn about in their filings
don't come true - Remember Y2K? - but if there's even a moderate risk
that a problem is in the offing, companies and the securities lawyers
handling their IPOs normally take a conservative approach and warn
potential investors.
Riverstone's warnings are actually pretty tame compared with what
some other pre-IPO companies have had to do to back off projections.
Last year, Internet incubator divine interVentures Inc. (DVIN) and
StorageNetworks Inc. (STOR), a data-storage company, both warned about
statements made by their own CEOs to the media prior to their IPOs, in
some cases contradicting the executives.
Divine's CEO, Andrew "Flip" Filipowski, for instance, said in a May
interview with the Chicago Sun-Times that the company "would begin
making money" in the following eight months.
In its amended filing with the SEC, though, divine said it couldn't
predict when it would be profitable though it didn't expect to be
cash-flow positive in eight months "or the foreseeable future."
-By Raymond Hennessey, Dow Jones Newswires; 201-938-5354;
raymond.hennessey@dowjones.com
(END) DOW JONES NEWS 02-14-01
12:35 PM |
