Shares of Gorilla Glass maker Corning jumped the most in nine years after it approved a $2 billion tie-up, Tuesday, with Samsung Display, a subsidiary of South Korean-based Samsung Electronics.
An industry shaking move, Samsung Display will hand over its 43 percent stake in a Liquid crystal display joint venture between the companies called Samsung Corning Precision Materials. The deal in return gives Samsung $1.9 in convertible preferred shares and it can invest another $400 million to buy more shares. After conversion, Samsung will own 7.4 percent of Corning. That partnership puts 50 percent ownership from Corning, 42.6 percent by Samsung and 7.4 percent by minority shareholders.
Helping make glass for LCDs in South Korea, the deal helps the New York-based Corning capitalize on surging demand for mobile displays which are fueled by sales of tablets, smartphones an other handheld gadgets. The long-term LCD display glass supply agreement between the two companies will run through 2023.
"Corning and its shareholders will realize attractive financial returns as the transactions produce immediate earnings accretion through the addition of the remainder of SCP, substantial cost synergies and significant incremental free cash flow," said Corning Chairman, President and CEO Wendell Weeks. "The structure of the transactions will also immediately increase Corning's domestic cash balances."
Corning said it had also approved buying back $2 billion worth of its shares which will cover the dilutive effect of issuing preferred shares to Samsung Display. Taking over Samsung Display will give Corning immediate access to $1.2 billion in cash and it believes it will add $2 billion in annual sales plus 20 percent to earnings in 2014 and 2015, excluding one-time items.
Another benefit came in Corning's share price which rose 25 percent to $19.24 in after-hours trading. Corning hopes to earn 33 cents per share in the third quarter which beats Wall Street's prediction by a penny. Expect the company to release the full results for its July-September quarter on Oct. 30.
Transactions are expected to close first quarter of 2014.
