On Uncertain Path, MRV Reviews Business Alternatives

MRV Communications Inc. — the Chatsworth technology firm that has been embroiled in a fight with dissident shareholders — has begun to explore “strategic alternatives” for the company. The decision, announced in a recent regulatory filing, raises the prospect of the optical communications firm shedding more business units or even all of its assets, putting the future of the Valley-based company, valued at nearly $160 million, on an uncertain path. Last year, MRV went through a host of management changes as the firm battled stockholders who demanded the company issue more than a $100 million dividend, shake up its board of directors and move to regain its listing on the NASDAQ. The company was founded in 1988 and had 743 employees and seven business units at the end of 2010. Last September, it began examining strategic alternatives for its Network Equipment Group, which comprises three units. It has since announced the sale of one of those. Now, with the company exploring strategic alternatives for all its assets, the entire company appears to be on the block. “The company, after divesting its Network Equipment business, will essentially become a cash cow,” analyst David Kang of B. Riley & Co. wrote in a November research note. MRV had $142.33 million in net cash at the end of the third quarter, before it declared a $75 million dividend to shareholders. Since December, the change of pace has been staggering: The firm lost its chief executive and four members of its board, including its interim chairman. Its chief financial officer has announced his resignation and stepped down in his role as interim chief executive. The company’s vice president of finance is also on her way out. Meanwhile, the company’s board of directors has been trimmed to five from eight, stacked by individuals aligned with the various shareholder groups who pushed for reforms. New CEO Barry Gorsun, who took the helm on Feb. 3, declined to be interviewed for this article, but upon his appointment, the latest leader promised the company would be “firmly committed to returning value to its stockholders.” Reached by phone, William Martin, the chairman and chief investment officer for Raging Capital Management LLC, one of the shareholder groups that pushed for changes, declined to comment on whether the latest steps by MRV have satisfied the private investment partnership. While the company has seen its management and the makeup of its board rocked, it’s found a surer footing financially after years of losses, which might make it more attractive to potential bidders who could reward dissident stockholders with a massive payday. But after seeing profit rise to $50.8 million in 2010, last year the company slid back. During the first nine months of 2011, MRV posted a $329,000 loss, although the firm attributed the loss to costs incurred from a sale of a subsidiary. MRV has not yet reported fourth- quarter earnings. The company’s optical communications unit is among its top revenue producing divisions. David Stehlin, president of the unit, said while revenues declined during the third quarter of 2011, the division’s future is brighter. He said the unit is hiring in Chatsworth, but declined to say how many. The company announced in September it was “exploring options” for the unit. The unit — which provides hardware to access, transport and manage fixed line, cable and mobile communications — stands to benefit as telecommunication giants race to revamp their networks to support data hungry customers wielding smartphones. “We make products that enable that to happen,” Stehlin said. Asked why MRV is exploring alternatives for his unit, he said: “We are a profitable business … it makes sense to look at a wide range of alternatives.” Stehlin said some customers grew wary of the revolving door at MRV, but that after reassuring clients there was no impact to their contracts or service, no one jumped ship. In the company’s 2011 third quarter filing with the SEC, it wrote that while opening up its Network Equipment business for strategic alternatives doesn’t guarantee a sale, just “the announcements themselves could create concerns and uncertainty among our customer base and among our employees regarding the company’s future.” Asked about MRV exploring “strategic alternatives” for the company and a possibility it could be sold, Stehlin referenced the firm’s Feb. 8 regulatory filing, announcing the decision. The company wrote in February that it has no “duty” to give updates or comment further unless a decision is made or “the process is concluded.”