Corvis seeks cash infusion for Broadwing

Corvis is issuing a private placement of common stock that will give the combination optical equipment vendor and service provider between $77.4 million and $95 million in cash, which it intends to use to strengthen its carrier subsidiary, Broadwing Communications.

Corvis will offer 67,278,280 shares of common stock at $1.15 per share for $77.4 million, about an 8% discount from yesterday’s closing price. Within 90 days, investors will also have the option of purchasing an additional 13,455,656 shares at $1.30 per share, which could give Corvis as much as $17.5 million more.

New and existing institutional investors, according to Corvis, will purchase the stock. The company’s vice president of investor and public relations, Andrew Backman, would not name the new investors but said their names may or may not appear in the 8-K document Corvis will file with the Securities and Exchange Commission within the next few business days.

Corvis will use the new funds to expand Broadwing’s presence in major cities by purchasing dark fiber and adding points of presence that are closer to enterprise customers. Doing so will reduce Corvis’ access charges by $3 million to $6 million per month once the initiative is complete in the first quarter of 2004, according to Backman.

A healthy balance sheet was necessary to sell to many enterprise customers, which are looking for financial stability in their providers, he added. Corvis ended June with $323 million in cash, and analysts estimate its cash burn from operations at about $20 million per quarter.

Analysts are calling the move a shot in the arm for Corvis, whose slim equipment sales and controversial investment last February in its own customer, Broadwing, left analysts somewhat puzzled about the company’s strategy. However, the vendor’s advancement into the final selection process of the federal government’s lucrative Gig-BE project, a large optical network, has given investors more confidence, as has a recent request for proposal from Verizon regarding long-haul optical networking.

In the quarter that ended June 30, Corvis reported $27 million in revenue, $26.7 million of which came from the Broadwing subsidiary; the remaining $300,000 came from equipment sales.

“[The new investment] is a function of who they are and where they’re playing now,” said CIBC World Markets analyst Rick Schafer. “They’re really not an equipment company anymore.”