2012StorageNetworks Packs It In
by Sarah Cohen
Published in The Daily Deal
July 31, 2003
StorageNetworks Inc.said Thursday, July 31, that it would liquidate, capping a three-year decline from the company's perch as a high-tech giant with a market capitalization of $8 billion to a software industry also-ran.
The Waltham, Mass.-based storage services and software provider said in March it had hired an investment bank to explore a sale of the company and other strategic options. With no buyers in sight, StorageNetworks will instead sell its remaining assets and distribute its remaining $201 million in cash to shareholders.
New York investment boutique Sonenshine Pastor and Morgan Stanley are advising StorageNetworks.
Storage industry veterans Peter Bell and Bill Miller launched StorageNetworks in 1999 with the help of a $10 million investment from Sigma Partners and other financial backers. The company's original business was to store data for Internet companies. When many of its dotcom customers folded amid the collapse of the so-called new economy, the company tried to remold itself as a vendor of storage software.
But Storage Networks was slow to introduce its products, and the company faced stiff competition from major storage software companies such as EMC Corp. and IBM Corp. Bell and Miller left the company earlier this year.
Although StorageNetworks' stock has risen in recent months, to $1.48 near Thursday's close, the company's sales were down to $327,000 for the second quarter from $1.3 million in the year-ago period. Revenue for the six months ended June 30 was $688,000, down from $2.3 million last year.
In a statement StorageNetworks CEO Paul Flanagan said the company received several offers from potential acquirers but "at price points below what we estimated as our liquidation value." It opted against making its own acquisition because of the high costs of technology development, he said.
"Reviewing the options available to the company, the board has determined that the best way to maximize shareholder value is to immediately liquidate the business and distribute the excess cash in the company to the shareholders," Flanagan said.
StorageNetworks representatives declined comment.
The company estimates that after expenses it will distribute $1.60 to $1.70 per share to stockholders. These expenses could include settlements for lawsuits related to its June 2000 initial public offering.
In April 2000 StorageNetworks priced 9 million shares at $17 to $19 each in the run-up to its IPO. The company raised $243 million in the offering, and its stock soared to $90.25 per share the following day. Its quarterly revenue peaked at about $30 million in 2001.
Goldman, Sachs & Co., which held a 14.5% stake in StorageNetworks, was lead underwriter of the IPO. Other participants were Credit Suisse First Boston, SoundView Technology Group and Thomas Weisel Partners LLC.
In August 2001 investors filed a class action against officers of Storage Networks and its bankers for allegedly making false statements about fees paid to the company's IPO underwriters. The suit was amended in April 2002 to include a similar complaint regarding a secondary stock offering by the company. The suits were outstanding as of the company's financial filings for the March quarter.