Optical Access Yanks IPO
When MRV Communications Inc. (Nasdaq: MRVC) filed plans a year ago to spin off its last-mile optical wireless unit in a $60 million initial public offering, buzzwords like “optical” and “wireless” spurred investor demand.
What a difference a year makes. Last Friday, the MRV division, dubbed Optical Access Inc., finally withdrew its IPO plans, which had Bear Stearns & Co. Inc. as lead underwriter. In typical understatement, Optical Access’s Nov. 16 filing with the Securities and Exchange Commission blamed “recent and current market conditions.”
Even when times are good, it's typical for several months to elapse between a company’s initial filing plans and its IPO. In the case of the Optical Access filing, the market was rapidly deteriorating during that time frame. When Optical Access filed in October 2000, the Light Reading Index was at 1,071. By the same date in December, the Index had slumped 23 percent to 827, which may have seemed like a good reason to wait for the market to improve. It’s now at 219, down 80 percent over the last 13 months.
Optical Access had planned to raise the $60 million by selling 5 million shares at about $12 each. Following the offering, there would have been 47 million outstanding shares in the company, with a market value of $564 million.
According to the most recent financial figures filed with the SEC, Optical Access had $15 million in sales for the nine months through Sept. 2000. At an annualized rate, that would have made the company worth 28 times sales right out of the gate.
Given the company’s brief financial history, the numbers sound absurd, compared with today’s valuations of companies that provide similar products. Optical Access has no direct competitors that are pure-play public companies. But providers of similar equipment that uses radio frequencies rather than optical technology are now trading at very low sales multiples. Netro Corp. trades at five times sales and Ceragon Networks Ltd. (Nasdaq: CRNT) trades at less than two times sales. Canon Inc., which has an optical division that competes directly with Optical Access, trades at barely over one-times sales.
If Optical Access’s high sales multiple did not frighten off investors, then the bottom line surely would have done the trick. The company lost $31 million, or 75 cents a share, during the nine-month period. And that, of course, was at the peak of the buying boom for optical equipment. Yet even at that rate, the IPO would have funded only two years of losses.
Despite the optimism of a year ago, Optical Access’s prospectus offered little hope that business would improve in the future. The document is littered with dire references to the limitations of the company’s technology, the challenges of merging its acquisitions, and the severity of the competition. Aside from competitors mentioned above, other optical wireless rivals include AirFiber Inc., LightPointe Communications Inc., and Terabeam Corp.. Competition for its switching products comes from industry leaders like Cisco Systems Inc. (Nasdaq: CSCO), Nortel Networks Corp. (NYSE/Toronto: NT), Foundry Networks Inc. (Nasdaq: FDRY), and Extreme Networks Inc. (Nasdaq: EXTR).
After the offering, MRV would have continued to own 89 percent of Optical Access. In such a case, it would have been similar to the case of Luminent Inc. (Nasdaq: LMNE), another MRV subsidiary that was successfully spun out as an IPO but whose majority of shares were retained by MRV. MRV is now second-guessing that spinoff and says it will absorb Luminent back into the company (see MRV: Luminent's a Drag).
The IPO withdrawal clears the way for Optical Access to obtain private funding, which would be necessary if it plans to exist as a standalone company. Its balance sheet in September 2000 showed a mere $567,000 in cash.
Optical Access’s securities lawyer, Mark Klein of Kirkpatrick & Lockhart, was not available for comment. Meanwhile, MRV’s stock dropped 52 cents (9.04 percent) Tuesday to close at 5.23
— Tom Davey, special to Light Reading, http://www.lightreading.com