Corvis hoards cash, waits for telecom resurgence

August 18, 2002|By JAY HANCOCK

ONE DOESN'T often get the chance to buy a dollar bill for 43 cents, but that's basically the deal with Corvis Corp. and its amazing penny stock.

Corvis, a maker of telecommunications components based in Columbia, is hoarding $580 million in cash and near-cash, enough to operate for five years, and has no debt to speak of. Yet the stock market values the company at only $250 million.

Corvis stock trades at 65 cents a share, yet the company's cash is worth $1.50 a share.

Value-investment opportunities rarely get more obvious or mouth-watering than this. Corvis, with few customers and no profits, could double its stock price tomorrow by announcing it was shutting down and distributing assets to shareholders.

Unfortunately for the instant-gratification crowd, Corvis managers seem to think they're running a fiber-optics hardware business, not a charity pool.

They want to nurse the cash, hold tight and wait for the narcoleptic telecommunications industry to start stirring in a few years so that they can ship big volumes of what everybody agrees are some of the best components in the industry.

"We want to be the first in line when this market turns around," says Andrew G. Backman, vice president of investor relations and public relations for Corvis, whose stock sold for $100 two years ago. "We've continued to structure the business for long-term success."

Corvis isn't the only company with a ton of cash, little business and a stock that runs with the worms, although it is the most extreme example I've found.

Like Corvis, dozens of outfits raised millions in public stock offerings during the 1990s technology boom, only to see their prospects evaporate as the economy faltered, tech spending plunged and investing fashions changed.

In Maryland, for example, wireless communications firm Aether Systems holds $436 million in cash and liquid investments, worth about $1.80 a share after subtracting debt and other liabilities. Aether stock closed last week at $2.89

Celera Genomics Group also sits on a cash stash. Its $889 million in cash and liquid investments, worth about $11.50 a share after subtracting liabilities, exceeds the $10.43 a share Celera was selling for Friday.

Human Genome Sciences, another biotechnology concern, holds a mountainous $1.6 billion in cash and short-term investments. After liabilities Human Genome's piggybank equals $8.30 a share. The company's stock ended last week at $17.59.

Of course, these companies are losing money and facing uncertain futures, which explains the steep drops in their stocks. And of course, their managers are husbanding the cash to operate the businesses, wait out the slump and pay themselves salaries, which explains why shareholders haven't gotten any checks.

But dollars selling for cents tend to fetch attention, and in some cases investors are trying to squeeze money from tech corporations that are cash-rich and revenue-poor.

Investor C. Robert Coates, who bought a 4 percent stake last year in California wireless concern Netro Corp., essentially browbeat the company through a lawsuit and public criticism before it agreed last month to surrender some of its $300 million in cash by buying back shares, thus raising its stock price by a third.

Several Wall Street hedge funds took big positions last fall in Clarus Corp., a cash-rich Internet software company, and recently got a group of their representatives elected as directors. The raiders have vowed to break up the company, whose stock trades for $4.60 a share and whose liquid assets, net of debt, are worth $5.90 a share.

Other, similar, companies are voluntarily giving back money.

This year, Internet concern Onvia.com Inc. paid a special cash dividend of $30 million after deciding it could operate with less capital. Biotech company Celeris Corp. and telecom equipment seller Advanced Switching Communications decided to shut down and surrender their remaining cash to stock owners.

There is no evidence of hostile hedge funds or other potential raiders with designs on Corvis' $580 million. Even if an attack were launched, large blocks of Corvis stock controlled by company boss David R. Huber and other insiders would impede the marauders.

Nevertheless, Corvis spokesman Backman refused to rule out a stock buyback, special dividend or any other form of what he called "options to increase shareholder value." For some, the gap between Corvis' net worth and its market value fairly glows with possibility.

"I think there's a good case to be made for a liquidation of the company," says David Gross, an analyst with Communications Industry Researchers in Charlottesville, Va. "Corvis is clearly in a situation where they need to reconcile the fact that their stock price is roughly 40 percent of the cash in the bank."

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