MRV Surges on Spinoff Expectations

The mania for anything telecom swept up Chatsworth-based MRV Communications on Monday, sending its shares soaring $12.69, or 30%, to a record $55.13.

The company (ticker symbol: MRVC), which makes high-speed optical network parts and systems, got a favorable mention in Barron’s magazine, published over the weekend.

Dan Schwartz, a money manager with York Capital Management in New York, said in Barron’s that he bought the stock about a month ago on the possibility that the company would begin to spin off shares of various divisions with high growth prospects--such as its optical-access business.

MRV’s total sales for the nine months ended Sept. 30 rose 13% to $214.6 million, but the company earned just $183,000 on those sales, in part because of soaring research and development costs.

The Wall Street analysts who follow MRV expect it to earn in the neighborhood of 25 to 31 cents a share next year, versus just 2 cents a share in 1999.

But earnings are basically irrelevant for most hot telecom and technology stocks these days. Investors are much more interested in the possibility of companies boosting their market values by spinning off divisions for which other investors will shell out top dollar in the initial public offering game.

Schwartz estimated the value of MRV’s pieces puts a total value on the stock of $60 to $70 at a minimum.

MRV has been a hot stock before: It soared from $10 to near $40 in 1996 before falling back to the $20 range. It jumped again late in 1997.

In August 1998, however, the stock collapsed after the company warned that product delays as well as weaker European sales would hurt near-term sales and earnings. The shares fell as low as $5 by October 1998.

As recently as six weeks ago the stock was selling around $20 a share.