Optical Access Bids for $108 Million IPO
Optical Acess provides products for wireless mesh networks, which use optical technology to transmit data and voice traffic over short links without the need for fiber-optic cable. The company was combined by MRV with Jolt Limited, an Israeli developer and manufacturer of optical wireless products, and AstroTerra, a San Diego-based company, and spun out as a possible IPO.
MRV has generated a lot of interest from optical investors through its incubator approach to creating optical companies. So far, however, its success has been unproven, because investors haven't yet reaped the benefits of IPOs from its portfolio companies (see Luminent Closes in on IPO and Investors Head for Luminent's Back Door), many of which are still in development stages.
There are a number of companies in the optical wireless space, all of which strive to provide bandwidth and network access solutions to customers who may not be able to directly access fiber (see Wireless Wonders). The primary debates in this emerging sector regard the proper networking topologies and whether wireless products can provide enough bandwidth or reliability for corporate networks.
Optical Access markets a number of networking products, but its primary product is the Optical Access Mesh, a wireless optic system with a built-in auto fallback to radio frequency (RF) links. One of the criticisms of optic wireless solutions is their susceptibility to adverse weather conditions. Optical Acess claims it can guarantee 99.999 percent uptime of the network through the use of the RF backup.
For the six months ended June 30, 2000, the company reported net sales of $7.9 million and a net loss of $6.9 million. According to the "pro forma" results, however, the company pulled in $10.8 million in revenue and lost a whopping $45.8 million. The latter results include the financial statements of Jolt and AstroTerra, as well as those of Optical Access.
Many of the risk statements in the S-1 filed with the Securities and Exchange Commission concern the relationship with MRV, as well as the costs associated with the merger with Jolt and AstroTerra.
MRV acquired Jolt for approximately $57.7 million in MRV common stock and options, and it acquired AstroTerra for approximately $160.3 million in MRV common stock and options. Those costs are still being amortized on Optical Access's financial statements.
For investors in MRV, the mechanism for receiving shares in Optical Access is uncertain. The preliminary S-1 does not say how much MRV will retain of Optical Access after the IPO, nor does it state how Optical Access shares will be distributed to MRV investors.
"MRV has advised us that it may apply for a private letter ruling from the IRS and permission from the Israeli tax authority in connection with a proposed distribution to its stockholders of all of our common stock held by it," says the S-1. "One condition to the proposed distribution is the receipt of favorable rulings from these agencies to treat the distribution as a tax-free transaction. We cannot assure you as to whether or when it will occur. Until this distribution occurs, if ever, the risks discussed above relating to MRV's control of us and the potential business conflicts of interest between MRV and us will continue to be relevant to our stockholders." --R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com