***** Dec.1999 News Revisted *******
** Dan Schwartz, a money manager with York Capital Management in New York, said in Barron's that he bought the stock about a month ago on the possibility that the company would begin to spin off shares of various divisions with high growth prospects--such as its optical-access business.**
***But earnings are basically irrelevant for most hot telecom and technology stocks these days. Investors are much more interested in the possibility of companies boosting their market values by spinning off divisions for which other investors
will shell out top dollar in the initial public offering game. ***
By TOM PETRUNO, Times Wire Services
MRV Surges on Spinoff Expectations
The mania for anything telecom swept up Chatsworth-based MRV Communications on Monday, sending its shares
soaring $12.69, or 30%, to a record $55.13.
The company (ticker symbol: MRVC), which makes high-speed optical network parts and systems, got a favorable
mention in Barron's magazine, published over the weekend.
Dan Schwartz, a money manager with York Capital Management in New York, said in Barron's that he bought the stock
about a month ago on the possibility that the company would begin to spin off shares of various divisions with high
growth prospects--such as its optical-access business.
MRV's total sales for the nine months ended Sept. 30 rose 13% to $214.6 million, but the company earned just
$183,000 on those sales, in part because of soaring research and development costs.
The Wall Street analysts who follow MRV expect it to earn in the neighborhood of 25 to 31 cents a share next year,
versus just 2 cents a share in 1999.
But earnings are basically irrelevant for most hot telecom and technology stocks these days. Investors are much more
interested in the possibility of companies boosting their market values by spinning off divisions for which other investors
will shell out top dollar in the initial public offering game.
Schwartz estimated the value of MRV's pieces puts a total value on the stock of $60 to $70 at a minimum.
MRV has been a hot stock before: It soared from $10 to near $40 in 1996 before falling back to the $20 range. It
jumped again late in 1997.
In August 1998, however, the stock collapsed after the company warned that product delays as well as weaker
European sales would hurt near-term sales and earnings. The shares fell as low as $5 by October 1998.
As recently as six weeks ago the stock was selling around $20 a share.
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Q: Where else are you seeing similar value plays?
Schwartz: One is MRV Communications, which we've held for only a month or so now. MRV makes networking
equipment, and it also built a large and profitable optical-components business. We view MRV as almost an
event-per-quarter stock. By that I mean there are a lot of things going on in terms of IPOs and spinoffs. If you speak to
the company, they will tell you they have hired a top-tier banker to explore alternatives for optical access. We think the
optical access business is going to go public or at least file their registration statement some time in the first quarter. And
we think they are going to bring in a high-profile CEO. The business makes money, it has a good revenue base, and we
think it has a lot of potential.
There are other businesses where a lot of interesting stuff is happening, too. After the optical business we think the next
business to go public will be a company called Hyperchannel, which they control, an online fulfillment center for
networking products. It is growing very, very rapidly. We think that business could be poised to go public, maybe even
file in the first half of next year. Then there's a substantial minority interest in a company called New Access, which is
doing next-generation multiplexing technology, the kind of stuff that Sycamore does. Kleiner Perkins and Juniper
Networks have both invested in it in the second round of financing. Obviously, to attract that kind of attention, the
product has to be real. If you do a sum-of-the-parts analysis you can get anywhere from the 60s-70s to ridiculous
numbers on the stock [which was recently at 35]. |
