Re: CORV - no argument whatsoever that it is obscenely valued BUT it's an early arbitration/takeout play apparently and said to have little downside risk at the current price (I guess we'll see about that when they start the October slam):
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Corvis: A Juicy Acquisition Target
By Jim Seymour
Special to TheStreet.com
Originally posted at 3:13 PM ET 9/7/00 on RealMoney.com
My email, sent to both TheStreet.com and RealMoney.com, has been on the fritz for a couple of weeks, but seems to be working OK now. With an average of more than 200-300 incoming emails from TSC/RM readers per day, that means a lot of messages were irretrievably lost. Apologies to those whose notes disappeared and thus went unanswered.
With the opening of TheStreet.com for free, when RealMoney.com launched, the volume of reader mail increased dramatically, and too often now, it just isn't possible to reply to every message. But this time it was because I never saw your messages.
That said, this morning's virtual pile has a number of great notes, one of which caught my eye immediately: What is the most acquirable company you know of right now? asks a reader who calls himself BigMamoo.
One reason my head snapped up when I saw that was that just the night before last, at a dinner party, a woman asked me exactly the same question, in exactly the same words. Is this a trend ... or with just two queries, do I have too little data so far ...?
More: Does this reflect the growing interest in the market -- or the growing sense that the market is a huge game, and now all can play at every level? Do we all really want to be arbitragers when we grow up?
My answer at dinner came fast, because I've been thinking about this a lot lately (see, maybe I want to be an arb, too!). I told her "Corvis," and that's my answer to Mr. (or Ms.?) Mamoo, as well.
Corvis (CORV:Nasdaq - news) got a great first-day pop when it came public last month, then shot up to $37 billion in its first week. It has saw-toothed up and down violently since then, nudging over 100 twice, to trading around 90 Thursday. Corvis got a nice pop when it exited its 30-day post-IPO quiet period last week, but it got only so-so support from its underwriters, so I suspect it is stuck in a 90-to-100 trading range for a while.
Meanwhile, it is a company for certain large, frequent acquirers -- especially Cisco (CSCO:Nasdaq - news), but also including Nortel (NT:NYSE - news) and Lucent (LU:NYSE - news) -- to lick their chops over.
As I said here last week, one of the huge challenges -- and even bigger gold mines -- in optical networking is the all-optical net, with all-optical switching; another is long-haul transmission legs without the need for regeneration.
Corvis sits atop those two mountains right now -- well, atop and nearly alone on proven long-haul transmission capability without frequent regeneration, and at least in very good company on all-optical nets -- and no matter how many research and dvelopment dollars Cisco, Nortel and Lucent may throw at their optical programs, they're exceedingly unlikely to pull ahead of Corvis ... and probably won't even be able to catch up.
Which makes Corvis a key part of the ongoing move-to-optical strategy of the three companies. (JDS/Uniphase (JDSU:Nasdaq - news) would be on that list too, if it weren't for the size and digestion problems of the SDL (SDLI:Nasdaq - news) acquisition, already on its plate. Besides, the first three sell systems, while JDS/Uniphase has made its name and fortune selling components.) There's also a dark-horse potential acquirer: Corning (GLW:NYSE - news).
All these companies could jump their optical-products lines ahead by a couple of years, score a long-lasting beat on the competition and gain access to what looks likely to be a very profitable product line in the near future by absorbing Corvis now.
Sounds weird, acquiring a company just months after it goes public? Just months after it established a market value well above any former private-purchase value? Sure. The big optical-networks companies can't change history. No doubt they'd love to have bought out Corvis before it went public. But the company was hell-bent on doing that IPO -- which clearly was the right decision -- and was driven hard in that direction by a pile of venture capital.
There was just no way to "Cerent-it," recalling Cisco's late-stage, pre-emptive buyout of optical hothouse Cerent a year ago for $7 billion. On the day the Cerent deal was announced, Cisco CEO John Chambers told me there were more of these high-dollar acquisitions coming. Could Corvis be this year's big play for the Cisco Kid?
Watch for my next column, on what stands in the way of a friendly buyout of this hot property.
(Second part follows)
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Is Corvis Too Expensive to Be Acquired?
By Jim Seymour
Special to TheStreet.com
Originally posted at 6:12 PM ET 9/7/00 on RealMoney.com
Corvis (CORV:Nasdaq - news) doesn't look much like an acquisition target at first glance: freshly public for just a couple of months now, semifanatical owners, bright future ahead on its own, awfully expensive. But it is.
And some speculative investors are starting to see it as a kind of "pre-arb" play, betting that it will be acquired for a substantial premium.
The really big obstacles? Two: A high market cap -- with the stock trading around $90, the company is worth around $30 billion. And its cranky founder's oft-professed insistence on remaining independent.
But can we say, even in a whisper, that everything has its price? Especially when you have to answer to your new public shareholders?
The $30 billion market-cap problem is hardly insurmountable. Any of the three likeliest acquirers, Cisco (CSCO:Nasdaq - news), Nortel (NT:NYSE - news) and Lucent (LU:NYSE - news), could swing that easily. And I don't think they'd get much flak from their shareholders: Corvis could be a big, big part of the optical puzzle for them.
With a smaller cap of around $94 billion, Corning (GLW:NYSE - news) is a longshot, but it could swing it, too, though the deal would take some... umm... arranging. As successful as Corning has been with fiber cable and components, a good argument can be made that Corning's long-term growth means it has to move up the food chain into products.
Overcoming Corvis founder/Chairman/CEO David Huber's insistence on staying independent may take some doing... spelled C-A-S-H. But in fairness, there's much more than greed at work for Huber.
He founded Ciena in 1992, but felt the company was, in effect, taken away from him: He wanted to push ahead at full throttle on all-optical projects, while his board wanted to see some nearer-term revenue. He walked with about $200 million in Ciena stock, laid low for a while, then raised $300 million in venture capital money to start Corvis.
Huber faces a problem typical of high-tech engineers/visionaries these days who are also true believers. Sure the cash and stock from a buyout would be nice, but what then? What Huber and his cohorts really want to do is ... exactly what they're doing right now. So, they figure, why sell?
Is Corvis likely to suddenly fall in value? No. Would even a big dip hurt Huber, in practical terms, financially? No. Is Corvis likely to continue to see its share price push up? Yes. Is running an independent, well-financed Corvis something like Huber's dream job? Yes.
So ... why sell?
Because of his fiduciary duty to shareholders. I think a Corvis buyout can be done, and I think those in it with a $90-or-so basis -- to say nothing of his early venture capital partners, and Huber himself, in for a basis of pennies per share -- would prosper in such a deal.
At least some Corvis holders would be eager sellers. Williams Communications (WCG:NYSE - news), for example, followed its usual strategy of demanding equity from Corvis when it agreed to run a high-visibility nationwide long-haul test with Corvis. That trick is common at Williams and now that the company is hurting -- both for cash and with its stock price at less than half its 52-week high -- Williams has been a net seller of its stakes in its optical-equipment suppliers. It's already scaled-out of its Sycamore (SCMR:Nasdaq - news) position, for example.
Wouldn't take much, I think, to persuade Williams to sell its hefty stake in Corvis.
Will it happen? I think so. Maybe not this week, not next, but sometime over the next couple of quarters. Although even down to $90, Corvis still looks expensive, I don't think it's a terribly risky hold in the meantime.
But remember that this isn't a price-to-earnings stock, it's a concept stock -- the company's real worth depends on your assessment of the potential payoff of its all-optical-network concept, and how well it executes on that path... and if that goes blooey!, there isn't much left.
The likeliest acquirers may be playing a dangerous game here, waiting day by day to see if Corvis' price will slip a little further, making it a cheaper buy. As a rebuttal to that penny-wise but ultimately foolish approach, I would point to Cisco's history of buying companies early, even if at a hefty premium, to make sure it gets them -- and then working the company's products into the Cisco line quickly.
A quiet hint to Cisco: Remember Qtera? Remember how much you wanted it? But you stalled and lost it to Nortel. Hurt a lot, didn't it?
Don't let it happen again, mmm...?
Meanwhile, would-be arbs, start your engines |
