Court appoints receiver for Expand Networks

Expand has been unable to repay its $10 million debt to Plenus, which was due two years ago.

Sources inform ''Globes'' that that Haifa District Court has appointed Adv. Paz Rimer as receiver for Expand Network Ltd., who will serve as special manager to keep the company operating as a going concern in order to sell it. Expand Networks investor Plenus Venture Lending Fund petitioned the court to appoint the receiver. Expand has been unable to repay its $10 million debt to Plenus, which was due two years ago.

The appointment brings Expand Networks to an end, 13 years after it was founded, raised over $100 million, underwent several restructurings and strategic changes, and made numerous attempts to find a buyer. The company develops WAN optimization products for satellite networks.

Expand Networks tale is a tragic one by every measure. It was once consider the leader in its field, but things changed in the mid-2000s when telecommunications equipment vendors entered the field and Expand had to compete in a narrowing market. Although it was the market leader, its share in the billion-dollar market lagged far behind Riverbed Technology Inc. (Nasdaq: RVBD), Blue Coat Systems Inc. (Nasdaq: BCSI), Cisco Systems Inc. (Nasdaq: CSCO), and Citrix Systems Inc. (Nasdaq: CTXS).

To counter this, Expand Networks raised large amounts of capital from a variety of investors, including DFJ Tamir Fishman Ventures Ltd. (TASE: TFVC), which owns 15% of the company, Vertex Venture Capital, Challenge Fund - Etgar, Intel Capital, TechnoPlus Ventures Ltd. (TASE:TNPV), Eurocom Group, Discount Investment Corporation (TASE: DISI), and Time Warner Inc. (NYSE: TWX). It didn’t work. The company was losing $250,000 a month, and its expenses were $14 million on $11 million revenue in 2010. The investors, who stopped supporting the company, will write off their investment

Plenus usually gives its borrowers a long rope. It lent Expand Networks $7 million in 2007, which it was due to repay by the end of 2009, but failed to do so. According to the court records, Plenus extended the grace period for repayment several times over the subsequent two years, but when Expand was still unable to repay the loan in September, Plenus petitioned the court to put the company into receivership.

The court records also reveal disagreements between Plenus and Expand Networks' largest shareholder, Tamir Fishman. Expand and Tamir Fishman told the court that the company had two acquisition offers for $6 million, and that receivership would frustrate the sale. Plenus general partner Ruthi Simha told the court, "Potential buyers sometimes make an offer to a company that is cleaned of debts by the court."

In its financial report for the second quarter, Tamir Fishman booked Expand Networks' value at $1 million, reflecting an 87% write-off on its $17 million investment in the company. It is unlikely to see any return on the investment from a sale.

The receiver will now try to sell Expand Networks' assets. It currently has 100 employees, including 60 in Israel, but layoffs are likely within weeks, along with a change in management. Potential buyers include equipment vendors Cisco, Juniper Networks Inc. (Nasdaq: JNPR), and Riverbed, which will want to improve their position in the field, or internet optimization solutions provides, such as Akamai Technologies Inc. (Nasdaq: AKAM) and Limelight Networks Inc. (Nasdaq: LLNW), or even Israeli companies.

Published by Globes [online], Israel business news - - on October 18, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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