Tax Man Smiles on MRV Shares

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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perry1961 12/4/2012 | 8:23:52 PM
re: Tax Man Smiles on MRV Shares Nobody really knows whether Zaffire will be sold or go public.Either way,MRVC gains.
Lots of things happening at MRVC,including testing results on Charlottes Web router,which Lightreading will publish before Supercomm.....
perry1961 12/4/2012 | 8:23:52 PM
re: Tax Man Smiles on MRV Shares As the article stated,valuations on MRVC and LMNE are alost the same,but MRVC has 16 more company's to spin off.
OPXS is priced for 550M,but has been on hold since November because the IPO market dried up.
TELM showed the IPO market is back.
IF OPXS gets its 550M market cap,MRVC will be worth another $7.00 a share.....minimum.
Whether the remaing 15 companies get any value before their IPO's is anybody's guess.
duffeck 12/4/2012 | 8:23:50 PM
re: Tax Man Smiles on MRV Shares <<in "back="" $28.18="" --="" a="" anybody="" as="" at="" back="" bought="" door"="" fact,="" for="" happened="" ipo="" ipo.="" last="" look="" luminent="" luminent's="" might="" money-maker="" mrv="" prior="" shareholders="" shares="" slam-dunk="" that="" the="" thinks="" time?="" to="" traders="" trading="" using="" want="" was="" were="" what="" where="" who="" year="">>

Actually MRV has done about as well as the Lightreading index if you compare the two from a point just after the LMNE IPO in November of last year to present. So why the snide comment about MRV share price in an otherwise good article?


duffeck 12/4/2012 | 8:23:49 PM
re: Tax Man Smiles on MRV Shares If if you want to see the comparison of MRVC stock price to the LR index use this URL.


Type in MRVC in the "Compare Symbols" box and select 6 months in the "Time Period" box and click on the "Go" button.

perry1961 12/4/2012 | 8:23:48 PM
re: Tax Man Smiles on MRV Shares MRVC was killed by the crashing nasdaq,the resulting IPO market closure,and earnings warnings from peers like NT,JDSU,and CSCO.
Interestingly,MRV's revenues were still climbing....and now the IPO market is back.
The market clobbered MRVC,but is now seeing the error of its ways....
SectorInvestor 12/4/2012 | 8:23:47 PM
re: Tax Man Smiles on MRV Shares Duffeck, You are absolutely right. MRVC has tracked the LightReading Index, sometimes higher, sometimes lower, but lately higher.

LightReading doesn't show much professionalism when they make comments like that.

Whatever happened to objective reporting?
jay shah 12/4/2012 | 8:23:46 PM
re: Tax Man Smiles on MRV Shares simple look at MRV balance sheet will reveal it has $10 in cash per share...plus most conservative skeptics say 2 LMNE shares will be distributed for one MRV share held. Plus...so many other potential IPOs or outright sale, etc. from the hat of current MRV....plus MRV's own fundamental strength...do the simple math...!

IRS ruling comes as additional icing on the cake !

I feel MRV can easily double from here in less than a month.
perry1961 12/4/2012 | 8:23:43 PM
re: Tax Man Smiles on MRV Shares There is $10.60 in book value,not cash.Also,the LMNE distribution will be closer to 1.7 ratio.
But,you are correct that MRVC could double(at least)from here.With TELM showing IPO window is open again....anything is possible with MRVC.
biostatprof 12/4/2012 | 8:23:41 PM
re: Tax Man Smiles on MRV Shares Per Yahoo Profiles, MRVC cash on hand is
3.88 per share, which translates to
approximately 300 million dollars cash,
at 75 million shares outstanding. Now,
some of that belongs to LMNE.

According to the last 10-Q filed at edgar online,


current cash and cash equivalents are $190.545million.

I always wondered where they got that cash.
89million from the convertible, and the balance
sheet says 60.822million in long term liabilities,
but I don't know if that is loans or something

If you go back to Nov 15, 1999, there is
$30.128 million in cash and $97.604 in investments,
primarily US treasuries, and the convertible
debentures are already on the books.

So where did the other 63million = 190 - 30 - 97
million come from over the last 18 months?

Scott Raynovich 12/4/2012 | 8:23:40 PM
re: Tax Man Smiles on MRV Shares The fact that these stocks float with the LR Index is exactly the point--both LMNE and MRVC float according to the whims of the market. So, how can you assume LMNE shares have any set intrinsic value when MRVC hasn't even announced when you'll get them and at what price?
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