Fibronics acquisition comments...I heartily agree with the soundness of the acquisition going forward.
Also, for you technical analysts out there, my analysis software tells me MRVC stock price is near the long-term moving average. I see no fundamental reason for a break.
(Not mine, but a good number crunch off Motley Fool, from ACFurst@aol.com)
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Hey, Sam - you beat me to it! I've been happy with MRVC so far, have held for several years. Like you, I thought we needed a more positive take on this, so here's my attempt at a "pep talk":
I don't think a 17% drop (or whatever it was) is justified by the Fibronics acquisition and private debenture placement. I have tried to figure out the potential stock dilution, from the given facts, and I get no more than a 7% increase in shares. There is to be $10 million of new stock issued as part of the payment - less than 0.5 million shares. There is also $30 million in new convertible debentures - probably not more than 1 million shares, if all are converted. So a maximum of 1.5 million new shares, unless there is something we haven't been told. That's about 7% of the outstanding.
Any MRVC cash shortage seems to be solved (for now) by the transactions. Assuming that the other part of the $23 million acquisition was for cash, MRVC is getting a net $17 million ($30 million - $13 million). So that's another problem out of the way, for the time being. Servicing the debt will cost only $1.5 million per year (5% x $30 million), although the debt must be retired, converted, or rolled over in 3 years.
As to the acquisition itself, I can't claim (nor can many others) to understand how this will be integrated into MRVC: that is, the exact benefits or challenges involved. But I am encouraged that the company is choosing to increase its technological capabilities. In MRVC's sector, you have to stay on top of the technology curve, or die. Look at what happened to Madge N.V. when they drifted into cruise-control. This acquisition may be protecting shareholder value by keeping MRVC on the cutting edge. It may even be another step to elevate MRVC into the networking "big leagues". It even increases MRVC's customer base. So I'll trust management's wisdom on this, at least for now.
The Fibronics acquisition may make MRVC seem more risky, but there might have also been a risk in falling behind - by not acquiring the technology. If things go well, MRVC now has even more upside potential than before. New techology, new customers, and new fuel (cash) to power it all. Comments? |
