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Broadwing Sells Corvis Shares

One of Corvis's biggest customers just sold 30 percent of its equity in the company.

Broadwing Communications (NYSE: BRW) announced yesterday that it has sold 2.4 million shares of the nearly 8 million shares it holds in Corvis Corp. (Nasdaq: CORV). The company still holds 5.5 million shares of its minority stake in Corvis, which it acquired as a result of a vendor-financing arrangement with that supplier.

Broadwing, the carrier formed from the merger of Cincinnati Bell with IXC Communications Inc. in November 1999, was responsible for all of Corvis's revenues during the fourth quarter of 2000.

Corvis says it has no comment on the sale. For its part, Broadwing says technicalities obliged it to report the transaction, though it declined to specify just what those were.

But the sale has turned heads, because Broadwing is one of Corvis's two key customers. The other, Williams Communications Group (NYSE: WCG), says it hasn't changed its position in Corvis. The size of Williams's share isn't publicly known, although Williams says it will be reported in the carrier's next 10K report to the SEC, due out sometime within the next week. A Williams spokesperson says the share is less than 5 percent of Corvis, however.

So far, Corvis hasn't produced any more paying customers than Broadwing and Williams, even though it's been under some pressure to do so (see Customer Questions Dog Corvis).

Broadwing's statement said its monetization of shares had nothing to do with its ongoing faith in Corvis: Indeed, its statement contains the following comment from CFO Kevin Mooney: "We are very committed to our strategic partnership with Corvis and are big believers in the enabling power of their breakthrough technology."

The deal demonstrates how carriers can use equity deals with suppliers as powerful leverage -- and insurance. The carriers can later use the pre-IPO shares in their suppliers to help generate cash in times of need, which also serves to protect their investment in new optical technology. Broadwing claims the $43 million realized from the sale will be reinvested in building out its optical network.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

SpliceGoddess 12/4/2012 | 8:48:13 PM
re: Broadwing Sells Corvis Shares People always condemn what they don't understand.
Religion, Race, Corvis Optical Switches....LoL
LightBeating 12/4/2012 | 8:48:42 PM
re: Broadwing Sells Corvis Shares Read the text: Broadwing HAS SOLD since Jan.25, ie. the date of lockup expiration. Plus, they didn't sell all of their shares.

I don't see what this has to do with the fact that "the box" works or doesn't work. Corvis equipment is installed and an integral part of the Broadwing network. If "the box" didn't work, they would have realized it at the field trial stage, and they could have pulled out of the deal altogether at that stage, saved their money and still made money on their Corvis stock.

LB
carpedatum 12/4/2012 | 8:48:58 PM
re: Broadwing Sells Corvis Shares I think if I was in a blackout period and watched my investment drop from a paper-gain high of $118/share down to a paltry $19/sh, I'd like to hang on a while longer hoping it will go up a bit. I'd like to pretend I'm this great investor and I never let emotion color my thinking, but the truth is, it does.

All the other comments in this thread concerning legal liability and SEC investigations are perfectly on-target. No one who ever intends to trade stock again for all of eternity would so glaringly ignore those rules. If they KNEW the box didn't work, the last thing in the world they'd do is sell the stock. That would be financial suicide! 100 law firms would join the SEC in that investigation and we're talking about BW's market cap that would be affected here, not Corvis'.

Sorry masterfunk, but I completely disagree with your conclusions and logic.
Rugger 12/4/2012 | 8:49:00 PM
re: Broadwing Sells Corvis Shares Wrong. The release was BW only, not a joint BW/CORV release. BW may be using another box in the future, but at the edge or in a metro application. They are legally bound to CORV for $200M. After that, who knows?
pmasterfunk 12/4/2012 | 8:49:01 PM
re: Broadwing Sells Corvis Shares Even with the 6-month blackout period Broadwing could have sold in Feb. @ 19.00 and realized 100% more then it did yesterday. The realization has come this box doesn't work.
pmasterfunk 12/4/2012 | 8:49:02 PM
re: Broadwing Sells Corvis Shares Rugger
I'm sure the people at Broadwing knew what their financial situation was two months ago so the argument they need money doesn't hold. All publicly traded companies know two to three quarters ahead of time the state of their balance sheet. What we will hear in two quarters is Broadwing will be using some other companyGÇÖs box.
clam 12/4/2012 | 8:49:02 PM
re: Broadwing Sells Corvis Shares also have to remember that corv went public last summer and there is a 6 month ipo lockup period for all insiders. therefore, insiders were prohibited by law from selling before sometime in february.
Rugger 12/4/2012 | 8:49:03 PM
re: Broadwing Sells Corvis Shares Read the release. Broadwing is committed to Corvis. Broadwing needed the cash now, not a few months ago. They don't control the market and I doubt they'd sell on inside information. Last time I checked, that was against the law. Selling a few million shares invites scrutiny. If they did sell on negative information, I'm sure they would have sold a much larger chunk. The upshot is, Broadwing sold because they needed the money, not because they have negative information. They nearly break even on their initial investment in the bargain. What's not to like about this from Broadwing's perspective?
photon2 12/4/2012 | 8:49:04 PM
re: Broadwing Sells Corvis Shares Yeah, what Broadwing now knows is that Corvis' system doesn't work! No reason to throw more money away.
pmasterfunk 12/4/2012 | 8:49:05 PM
re: Broadwing Sells Corvis Shares Rugger
If this is good business then why didn't the sell back when Corvis shares were at a much higher level? It sounds to me they know something we don't.
optical_guy 12/4/2012 | 8:49:12 PM
re: Broadwing Sells Corvis Shares Rugger - thanks for the DD and the balanced view of this transaction....a view that will never come from our hosts, LR.
Rugger 12/4/2012 | 8:49:14 PM
re: Broadwing Sells Corvis Shares Digging further into the story, Broadwing spent $44M on it's investment in Corvis. Selling $43M worth of shares now frees up capital AND recoups their most of their initial investment. Makes good business sense.
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