Roctest provides a back-door for investors wanting to take a stake in the hot startup

March 15, 2000

3 Min Read
Investors Find Route into Corvis

Quite a few people would give their eye teeth to own shares Corvis Corp., an optical networking startup viewed by some financial analysts as potentially worth $20 billion if it was to go to an IPO.

Very few people realize that they don't have to give up their eye teeth to achieve this goal. There is a way of buying the equivalent of Corvis stock right now, albeit via a similar back-door to the one described in yesterday's story about Nanovation Technologies Inc

In Corvis's case, a company called Roctest Ltd that's quoted on the Toronto stock exchange (ticker symbol RTT) owns 105,232 Series D shares in Corvis shares, each of which is convertible into 12 shares of common stock. This represents 4.56 percent of the startup's outstanding stock. As a result, buying shares in Roctest gives investors an indirect stake in Corvis, in the same way that buying shares in Stamford International Inc. gives investors a pre-IPO stake in Nanovation (see Nanovation Prepares the Ground for an IPO).

The link between Rocktest and Corvis became more widely known last February, and drove Roctest's shareprice up from around $5.50 to $10. However, one Roctest investor who contacted Light Reading after yesterday's story on Nanovation reckons there's plenty of scope for a further several fold increase in Roctest stock (see Feedback, page 2, for details).

Much of this speculation is based on the belief that Corvis's founder and CEO, David Huber, is determined to stick it out to an IPO. He's rumoured to have turned down an offer of $10 billion for his company from Cisco Systems, Inc.

Corvis is developing a package of switching, transmission and management systems to deliver all-optical long haul backbones. Its gear is being trialed by a handful of carriers. Huber himself co-founded Ciena Corp. but left soon after its IPO to set up Corvis. See The Top 10 Movers and Shakers in Optical Networking)

by Peter Heywood, International Editor, Light Reading

"Brad M", an investor in Roctest, points to extensive analysis of Roctest and Corvis that he's posted on Raging Bull's message board:

Harry Chernoff, senior economist with Science Applications International Corp. (SAIC), says:
Roctest didn't move from $2 to $10 on the Corvis stake. In fact, it didn't move at all in the summer of '99 when the transaction that created the Corvis stake was consummated. It only increased (from about $5.50 to $10 n February '00 when it became widely known that the sale of the Roctest subsidiary to Corvis was for Corvis stock, not cash. The stock previously moved up from a few dollars a share to the $6 range in late '99 (before falling back) when the company announced it was entering the fiber optic instrumentation business.

Other than that minor point, the article is exactly right.

Editor's note: The article has been corrected to reflect this.

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