Samsung acquires 7.4 percent stake in Corning, maker of Gorilla Glass

Corning, maker of the Gorilla Glass that is used on basically every high-end smartphone out there, has announced that it has taken full control of Samsung Corning Precision Materials Co. Ltd., a joint venture 43 percent owned by Samsung. In return, Samsung will be getting a 7.4 percent stake in Corning, valued at $1.9 billion worth of shares.

Furthermore, Samsung and Corning have also signed a deal that will secure supply of the latter’s Gorilla Glass to Samsung Display through 2023, a move that should ensure that Samsung is able to use the most scratch-resistant display glass in the market in its devices for many years to come (though whether we’re still using Samsung smartphones, or smartphones from any major manufacturer today, in 2023 remains to be seen.)

Here’s the press release.

Corning and Samsung Strengthen Strategic Collaborations

Corning to acquire full ownership of SCP, enabling significant synergies
Corning’s board authorizes additional $2 billion share repurchase program
Actions expected to be immediately accretive on fully diluted basis for Corning

CORNING, N.Y., October 22, 2013 – Corning Incorporated (NYSE: GLW) announced today that it is entering into a series of strategic and financial agreements with Samsung Display Co., Ltd., intended to strengthen product and technology collaborations between the two companies. These agreements will allow Corning to extend its leadership in specialty glass and drive earnings growth. Corning expects the transactions to close in the first quarter of 2014.

The series of transactions, subject to closing conditions being met, will result in:

• Corning obtaining full ownership of Samsung Corning Precision Materials Co., Ltd. (SCP), an unconsolidated equity venture with Samsung Display that manufactures LCD glass in Korea. Samsung Display currently owns 43% of SCP.
• After redemption of their interest in SCP, Samsung Display’s investment in new convertible preferred shares of Corning with an aggregate face amount of $1.9 billion.
• Corning’s acquisition of the other shareholders’ minority interests in SCP for an expected proportional cash payment.
• Samsung Display’s additional $400 million investment in Corning by subscribing to new convertible preferred shares.
• Using Corning’s current share count, Samsung Display’s combined investment in Corning would result in approximately 7.4% ownership on an as-converted basis.
• A new long-term LCD display glass supply agreement between Corning and Samsung Display through 2023.
• A strengthening of the two companies’ technology collaborations on strategic product development and commercialization initiatives.

In addition, Corning’s board of directors has authorized an additional $2 billion of share repurchases through Dec. 31, 2015, dependent upon the transaction closing.

“We are excited to enter this new era of collaboration in our 40-year equity relationship with Samsung, one of the world leaders in consumer electronics,” Wendell P. Weeks, chairman, chief executive officer and president, said. “The agreements provide important financial and strategic benefits to both Corning and Samsung.”

“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. Our new long-term supply agreement will provide Corning steady demand in the global LCD market. By leveraging SCP’s fusion-based manufacturing assets, we will further extend our leadership in advanced glass. This affords us greater flexibility in servicing customers, managing capacity, and minimizing capital spending as we expand production of Corning® Gorilla® Glass and pursue new specialty glass applications,” he added.

“We are pleased to have an opportunity to strengthen the strategic ties between our two companies,” Kinam Kim, president and chief executive officer of Samsung Display, said. “We look forward to concentrating our efforts and combining our expertise in product development with Corning’s renowned leadership in glass technologies to develop new market opportunities in consumer products and other industries.”

Corning Expects to Realize Immediate and Long-Term Financial Benefits“Shareholders will benefit from access to $1.2 billion which represents Corning’s share of existing cash on SCP’s balance sheet, as well as the cumulative incremental free cash flow going forward, which could total $2 billion over the next four years,” Weeks said. The structure of the transaction will also immediately increase Corning’s domestic cash balances.

He added, “Synergies from integrating our worldwide fusion glass assets should approach $100 million pretax in 2015 and continue to grow thereafter. We believe that accretion to Corning’s core earnings per share, on a fully diluted basis of approximately 20% in 2014 and 2015, can be generated from the combination of profits from the soon-to-be acquired 50% of SCP; the resulting manufacturing synergies; and the impact of the additional share repurchase program. The impact of the additional share repurchase program should offset the potential dilution of shares embedded in the convertible preferred security. The transaction should add approximately $2 billion in annual sales; $350 million in incremental profit before special items; and approximately $500 million in additional cash flow to Corning.”

Corning also expects to realize increased flexibility in glass-melting capabilities, which should bring added capital savings. Furthermore, the company will re-evaluate the need for major capital expenditures for additional fusion glass manufacturing assets.

The new convertible preferred shares will have an annual 4.25% coupon and are convertible into common shares based on a price of $20 per common share. The preferred shares are not convertible for seven years, subject to certain exceptions, and contain only limited voting rights until conversion. Effective today, Corning and Samsung have entered into a standstill agreement that limits Samsung’s activities with respect to Corning’s shares and governance. Effective upon closing, a shareholder agreement between Corning and Samsung will limit Samsung’s ownership to no more than 9% of Corning’s common shares on an as-converted basis. The transaction contains a re-pricing mechanism that will account for changes in SCP’s glass prices, volume and Japanese yen to U.S. dollar exchange.

Corning has LCD glass manufacturing operations in the United States, Japan, Taiwan and China. Samsung Corning Precision Materials has LCD glass manufacturing facilities in Korea. Following completion of the transaction, the SCP organization will be integrated into Corning’s Display Technologies segment. Corning will be able to service all specialty glass customers in all regions directly, utilizing its manufacturing facilities throughout Asia. U.S. Corsam Technologies LLC, and Samsung Corning Advanced Glass LLC, both equity affiliates established between Corning and Samsung Display, will continue under their current agreements.

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