MRV Communications Inc. (NDAQ:MRVC) shares rose more than 20 percent earlier this week after the company finally made good on its promise to spin-off Source Photonics via an initial public offering. The number of shares to be offered and the price range of the proposed offering have not yet been determined, but the IPO is planned to net up to $130 million for the optical communication products maker. Shareholders are hoping that the move will unlock value through the separation.

Source Photonics makes optical subsystems used to transmit high-bandwidth video, voice and data. Its customers include Alcatel-Lucent, Motorola, and Tellabs. The division posted a loss of around $1.4 million for the nine months ended September 30th compared to a $311,000 loss for the same period a year earlier. Revenue during that period increased 40 percent to $93 million. Meanwhile, the company expanded its employee base to 1,486 employees and full-time contractors worldwide.

Spin-offs in general often prove to be great investments for a variety of reasons; however, this spin-off is slightly different for a number of reasons. First, MRV is only selling the company’s Class A shares while retaining all Class B shares for itself (although they may be spun-off later). Secondly, Source Photonics is a company that is losing money operating at a loss. And finally, this offering is more of an IPO than a spin-off in that new shares are being issued.

In the end, this spin-off may not be worth investing in immediately, but any divesture of Class B shares by MRV would definitely be worth watching. Also, MRV itself will be able to save money and realize IPO proceeds and profits as a result of this spin-off. Therefore, it may be worth watching the parent company itself.

Related Companies
Foundry Networks Inc. (FDRY)
Cisco Systems Inc. (CSCO)
Extreme Networks Inc. (EXTR)