Cabletron Spinoff Parade Begins With Riverstone Filing

The hot Net equipment market will get a new pure-play entry.
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Riverstone Networks

, a maker of communications equipment for the Internet, filed for a $200 million

IPO Monday, the first of

Cabletron Systems'

(CS) - Get Report

proposed spinoffs to do so.

Back in February, Cabletron announced it would form four independent operating companies, with Riverstone capturing the hottest segment of the business. The other three are

Enterasys Networks

,

Global Network Technology Services

and

Aprisma Management Technologies

.

There is a fair amount of disagreement over the wisdom of that plan. Critics contend that Cabletron, based in Rochester, N.H., has been plagued by an inability to execute in a hot market and that the raft of spinoffs will not change such mismanagement.

However, the company bets that the new stand-alone entities will garner proper valuations. Clifton Gray, the data networking equipment analyst at

Kaufman Brothers

, estimates that breaking out Riverstone will value it at $2 billion, according to the trading multiples of its competitors (

Extreme Networks

(EXTR) - Get Report

,

Foundry Networks

(FDRY)

,

Alteon WebSystems

(ATON)

,

F5 Networks

(FFIV) - Get Report

,

Juniper Networks

(JNPR) - Get Report

and

Avici Systems

(AVCI)

). He rates Cabletron a buy, and his firm has done no recent underwriting for the company.

In addition, "investors hate diversity. They like to jump on pure-plays," says George Nichols, a stock analyst at

Morningstar.com

.

The year has already seen a couple of prominent spinoffs, such as

3Com's

(COMS)

Palm

(PALM)

and

Tyco International's

(TYC)

TyCom

(TCM)

. More are in the pipeline, including

MRV Communications'

(MRVC)

Luminent

, which filed for an IPO in July.

The lead manager of Riverstone's issue is to be

Morgan Stanley Dean Witter

.

Chase H&Q

,

Lehman Brothers

and

Salomon Smith Barney

are acting as co-managers.

Shares of Cabletron closed Monday trading at $32.25, down 75 cents.

As originally published, this story contained an error. Please see

Corrections and Clarifications.