StorageNetworks Succumbs

The deathwatch for long-suffering StorageNetworks Inc. (Nasdaq: STOR) is finally over. The company said today that it has laid off most of its staff as it awaits liquidation (see StorageNetworks Liquidates Itself).

The Waltham, Mass., company announced today that its board has approved its liquidation, and that it would maintain only a small transition team to oversee the winding down of the business. The company also said that its president and CEO, Paul Flanagan, left the company today but will remain on the board of directors until the liquidation process is completed.

StorageNetworks will file a proxy statement seeking its shareholders approval of the plan and expects to complete the liquidation within 20 days of that approval.

The announcement, which accompanied the company’s second-quarter results today, was hardly a surprise. StorageNetworks has been steadily shrinking over the past two years. Last month, the company announced that it was finally exiting the ailing managed storage services business, after dropping the storage resource management (SRM) software side of its business at the beginning of the year (see StorageNetworks Ditches Services Biz and StorageNetworks Hacks Self in Half).

And as StorageNetwork’s business has declined, so has its headcount. From its summit of 670 employees in mid-2001, the company has continuously chopped heads. After StorageNetworks trimmed 35 percent of its staff last month, it had 60 employees left on its payroll (see StorageNetworks Continues to Shrivel and StorageNetworks: Big Layoff).Before making the final decision to liquidate the company, StorageNetworks says it, along with its investment bankers, evaluated a number of alternatives -- including selling the company to a third party and acquiring technologies, or companies with technologies -- as well as its prospects if it were to continue as an independent software vendor (see StorageNetworks Seeks Buyer). But in the end, the company’s board decided that liquidating the business was the best way to "maximize shareholder value." By distributing excess cash, the company says it should be able to give each shareholder between $1.60 and $1.70 per share.

Investors were apparently happy with the company’s decision. Following the news this morning, StorageNetworks saw its shares climb more than 14 percent, to $1.46 a share. The market optimism could be because the company ended its last quarter on a positive note, actually swinging to a profit on $23 million in income from discontinued operations. StorageNetworks today reported earnings for its second quarter of 2003 of $19.3 million, or 19 cents a share, compared with a loss of $5.5 million in the year-ago quarter. Revenue for the quarter, meanwhile, fell to $327,000, from $1.3 million a year ago.

As of June 30, the company said it had $197.5 million in net cash (total cash, restricted cash, and investments, minus capital lease debt), which is an increase of $3.5 million from March 31. In the same time period, the company also says that it managed to reduce its total liabilities from $27.3 million to $24.9 million, largely due to its vacating office space.

The company’s general counsel, Dean Breda, will take over the day-to-day responsibilities of president and CEO during the liquidation period, the company said.

— Eugénie Larson, Senior Editor, Byte and Switch