Comverse Shares Drop on Spinoff News

NEW YORK ( TheStreet) - Shares of Comverse Technology ( CMVT) fell nearly 4% on heavy volume after the company announced plans to spin off its main operating unit, disappointing investors hoping for an outright buyout.

The stock closed Wednesday at $6.29, down 26 cents, on volume of 8 million, more than eight times the issue's trailing three-month daily average of around 950,000.

"Recall Comverse has been looking to unlock value from its inefficient holding structure for years, and this kicked into higher gear following the resolution of the accounting review in September which opened additional options," RBC Capital Markets analyst Daniel Meron wrote in a report. "Our sense is that Comverse did not receive the adequate valuation from prospective bidders for its assets and moved to a break-up via the public market."

Meron wrote that in the short-term, investors may be "disappointed by the lack of outright M&A to unlock value in a speedy fashion." In the long-term though, Meron sees value appreciation as the company's corporate structure is simplified.

Meron has an outperform rating on the stock. Of the eight analysts who cover the company, five are bullish at either strong buy (3) or buy (2) vs. three holds. The median 12-month price target sits at $9.75.

Comverse shares are down more than 9% in the past year, topping out at $7.99 on June 1 then scraping a 52-week low of $5.91 on Aug. 10.

Comverse Technology is a holding company that includes wholly-owned subsidiary Comverse, a software company, as well as majority-owned subsidiaries Verint ( VRNT), a workforce optimization company, and Starhome, a roaming services firm.

The Comverse business being spun off to shareholders provides software applications for billing and subscriber management by operators of wireless, wireline and cable networks. The business generated revenue of roughly $243 million in the company's fiscal third quarter. Verint's revenue contribution to Comverse Technology's results was around $99 million, while Starhome contributed $11 million.

Comverse Technology anticipates the split will happen in the second half of 2012.

TheStreet Ratings gave Comverse a D- sell rating.

-- Written by Alexandra Zendrian.

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