MRV Buys Fiberxon, Preps IPO
Optical transceiver vendor Fiberxon Inc. will get its wish to go public, but only after being acquired by MRV Communications Inc. (Nasdaq: MRVC) and merged into that company's LuminentOIC Inc. subsidiary.
MRV announced the plan today, in pieces. The company first announced a planned $131 million acquisition of Fiberxon in cash and stock, a deal expected to close in the first half of 2007. That was followed up by MRV's declaration of a pending Luminent IPO, to be launched after the Fiberxon purchase, possibly as late as 2008. (See MRV to Acquire Fiberxon and Luminent Preps IPO.)
MRV stock was up 11 cents (2.9%) at $3.94 in late afternoon trading today.
The $131 million price consists of $17 million in cash, 21 million MRV shares, and another payment of $31.5 million in cash and/or stock to be made within 18 months of the deal's close.
Fiberxon and Luminent both sell optical transceivers and subassemblies, but officials think the overlap in products isn't so severe. Fiberxon sells EPON transceivers for the Asian market, an area Luminent hasn't tapped, and is also stronger in short-reach, low-cost access transceivers, says Near Margalit, Luminent CEO.
The reasoning behind the deal parallels that of NeoPhotonics Corp. (NYSE: NPTN), which has been broadening its product lines through acquisition. (See NeoPhotonics Expands in China and NeoPhotonics Buys Paxera.)
"We continue to believe scale and size are very important to compete, especially in fiber-to-the-home," Margalit says.
In fact, Margalit says Luminent/Fiberxon might even be the largest transceiver vendor -- that is, when you exclude datacom and enterprise transceivers, an area dominated by Avago Technologies Pte. and Finisar Corp. (Nasdaq: FNSR).
Breadth aside, the Fiberxon buy would also give Luminent its first operational base in China. And while Fiberxon claims a good chunk of its business is outside of Asia, its ties to Chinese carriers certainly helped push the deal. "There's no question Luminent's revenue base was very Western-centric, and the addition of Fiberxon makes for a much more global balance," Margalit says.
Today's deal marks the second time MRV/Luminent has tried to get a piece of China. Earlier this year, Luminent had agreed to acquire HG Genuine Opto, a subsidiary of Huagong Tech Co. Ltd. But sagging market valuations scuttled that deal. (See Luminent Buys Chinese Vendor and Luminent Cancels HG Buy.)
The IPO dream
So, what about Fiberxon? Three years ago, the company had its heart set on a U.S. IPO. Fiberxon was even incorporated in the United States despite having nearly all its operations in China -- a conscious choice made by CEO Li Hsu to increase his company's chances. (See Fiberxon Eyes IPO and Fiberxon Mulls IPO.)
The MRV purchase takes Fiberxon out of an IPO market that's warming up to optical. Optium Corp. (Nasdaq: OPTM) went public in October, opening at $21.25 and closing yesterday at $24.10, a 13 percent increase.
But Fiberxon never built up the kind of IPO buzz that's surrounded the likes of NeoPhotonics, Opnext Inc. (Nasdaq: OPXT), and Santur Corp. (See Optium IPO Rolls On, Optical IPOs: Opnext Is Next, and OFC: Optics & IPOs.)
Fiberxon officials weren't available for comment, but it appears the revenues just didn't spell IPO. Fiberxon was on a fast clip in 2004, when it predicted a $30 million year, doubling its 2003 sales. Officials then were optimistic they could reach $60 million by 2005.
It wasn't to be. Hsu told Light Reading last year that revenues in 2005 climbed to about $39 million, and today the company says 2006 revenues came in at $45 million to $48 million. Fiberxon does claim it's been profitable for the past 17 quarters, but word is that the company started looking for options beyond an IPO.
"We had been hearing for more than a year that the company had put itself up for sale," analyst John Harmon of Needham & Co. wrote in a report issued today.
Fiberxon already had 350 employees in 2004 and has grown to more than 700, according to the MRV press release. Those employees would be retained after the acquisition, giving Luminent a total of 1,300. Fiberxon's executive team will be given senior positions in Luminent, Margalit says -- with some exceptions. Margalit confirmed a rumor that Fiberxon's vice president of finance has left the company.
— Craig Matsumoto, West Coast Editor, Light Reading