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Corning Builds War Chest

Light Reading
News Analysis
Light Reading
9/15/2000
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A preliminary proxy statement sent this week to the U.S. Securities and Exchange Commission (SEC) by Corning Inc. (NYSE: GLW) could indicate that the vendor is about to step up its program of optical networking acquisitions, analysts say.

"Corning's building a war chest for acquisitions," said one analyst, speaking anonymously.

"Corning's leaving its options open," agrees Lawrence Harris, VP at financial service firm Josephthal & Co.. "They're always looking for new business opportunities through acquisitions."

The Form 14A that Corning filed yesterday calls for a November 8 shareholder meeting to approve an increase in Corning's authorized shares from 1.2 to 3.8 billion -- ensuring its ability to request stock issues for swap or barter in future acquisitions.

Theoretically, adding another 2.6 billion shares to the existing 1.2 billion gives Corning the potential to generate another three quarters of a trillion dollars in the public markets, based on its current share price. But it's not that simple. The planned increase in shares does not signify that Corning can go ahead and issue huge amounts of stock. Corning's simply applying to raise the overall number of shares it has to work with. Actual issues, swaps, and splits of stock must always be approved by Corning's board.

"The number of authorized shares is really cosmetic," says a Corning spokesperson. In effect, she says, it's a vote of confidence in the company's future ability to raise money in the public markets.

Typically, according to Corning, companies maintain an overhead of authorized shares that's three to four times greater than the actual shares the company has outstanding. At last tally, Corning had about 319 million shares of common stock in the public market, with 1.2 billion authorized shares. The company plans a three-for-one stock split October 8 that will bring that number of shares to about 957 million. By applying for 3.8 billion authorized shares, it's ensuring that it maintains an acceptable amount of leeway for future transactions, such as mergers and acquisitions.

Corning's already proven its taste for shopping with a string of recent acquisitions (see Big Vendors Acquire MEMS Makers and Corning to Buy Optical Instrument Vendor). And it was seriously considering buying the optical component division of Nortel Networks Corp. (NYSE/TSE: NT) when talks fell through earlier this summer (see Corning and Nortel End Discussions).

Also on the November agenda is approval for 3.5 percent of all shares to be included in a new and improved employee stock option plan tied to compensation -- a way, Corning says, to ensure the company gets its pick of the best engineers in an increasingly competitive hiring environment.

An attractive stock option plan also might help to ease the pain of transition for engineers in any company Corning acquires -- ensuring that key personnel won't jump ship after a takeover.

Harris says this latest SEC filing ties in well with Corning's S-3 filing August 23, in which the vendor requested a so-called shelf registration, giving it the option to sell up to $4 billion in securities or stock over the long term. That, he notes, will likely help Corning prepare equity offerings over the next several years in order to fund any future acquisitions it makes.

Corning's move did nothing to enhance its position in the market. Late today, Corning's stock had lost more than 11 points and was trading at $291.88.

Harris and other analysts say the filing has little to do with the falling stock price, which matches an overall droop in the components sector (see Market Continues Its Tumble).

"We've seen a lot of volatility in the telecom sector over the last few weeks," Harris says. "We remain very positive on Corning's outlook."

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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