Tax Man Smiles on MRV SharesTax Man Smiles on MRV Shares
"Preliminary" IRS ruling on spinoff Luminent spurs market into a buying spree for shares of MRV Communications
May 21, 2001
Nasdaq has staged a healthy rally during the last four trading days, so it's hard to find an optical networking stock that isn't moving like a German sports car.
But then there's MRV Communications Inc. (Nasdaq: MRVC), whose shares have gone Ferrari. On Monday, shares of MRV rose 1.19 (10%) to 12.90 on volume approaching 7.6 million shares -- more than quadruple the average daily trading volume of 1.8 million shares. And in the past four days of trading, MRV has tacked on gains of 46 percent, rising from 8.80 on May 16 to a closing price of 12.90 on Monday.
What gives? It's hard to say exactly what is going on inside those traders' minds, but one event seems to have coincided with the recent price and volume spike. On May 17, MRV announced that the U.S. Internal Revenue Service had issued a "preliminary" ruling indicating that they will consider the spinoff of shares in MRV's public subsidary, Luminent Inc. (Nasdaq: LMNE) as a tax-free event. MRV owns roughly 92 percent of Luminent's outstanding shares.
The tax ruling is important because it makes it more likely that MRV will distribute Luminent shares to MRV shareholders if there are no adverse tax consequences. MRV shareholdres are itching to get their piece of the Luminent shares that were created when MRV spun it off as an IPO in November 2000 (see Luminent's Dull Debut). With MRV and Luminent sporting nearly equal market capitalizations of $1 billion, a distribution of Luminent shares to MRV shareholders would amount to found money -- which may explain why more investors have gone looking for that money in recent days.
There's only one catch: MRV officials have still made no formal plans for the Luminent share distribution, according to an MRV spokeswoman. And until the exact share ratio of the distribution is determined, it's impossible to determine how sweet the deal will be for shareholders of MRV.
In fact, anybody who thinks the Luminent IPO was a slam-dunk money-maker for MRV shareholders might want to look back at what happened to traders who bought MRV prior to Luminent's IPO last year -- using MRV shares as a "back door" to the Luminent IPO. Where were MRV shares trading at that time? $28.18.— R. Scott Raynovich, Executive Editor, Light Reading
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