Corning to Buy Pirelli Optical Unit for $3.6 Billion (Update1)
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Hi Techplayer, you do not make acquisition like this just to see slower spending.Europe, most likely will spend more then most think ( thay are late).
Mr. Bambs is clasic short, and should go back to his favorite subject- shorting Crisco....
Regards
Zbyslaw
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By Jim Osborne
Milan, Sept. 27 (Bloomberg) -- Corning Inc., the world's top maker of cable used in fiber-optic
networks, agreed to buy Pirelli SpA's U.S. optical components unit for $3.6 billion in cash, the two
companies said.
Corning will pay $3.6 billion for Pirelli's Optical Technologies unit, in which Cisco Systems Inc.
holds a 10 percent stake, Corning said in a statement distributed by Business Wire. Pirelli said in
a faxed statement which Fabio Magrino, a company spokesman confirmed, that it will make a
capital gain of more than $3 billion from the transaction.
``This is a move to focus on (Pirelli's) strength in optical fibers, getting out of the components
business because they're only niche players there,'' said Dirk Meyer, an analyst at BHF Bank
AG in Frankfurt. He has an ``outperform'' rating on Pirelli.
Corning has spent billions of dollars this year to make acquisitions, build new factories and
expand production of fiber- optic components, which beam data, voice and video signals along
hair-thin strands of glass. Demand is soaring as communications companies upgrade networks to
handle escalating Internet traffic.
Pirelli, Europe's largest cable maker and No. 3 tiremaker, wants to focus on its power cables,
fiber-optic and tire businesses. In March, the Milan-based company said it was considering
selling shares in Optical Technologies in an initial public offering.
Instead, Pirelli chose to sell the business to a rival, mirroring a move by other companies, doubtful
of the proceeds from a public offering. Vodafone Group Plc, the world's largest mobile telephone
company, for example, is currently in talks to sell Infostrada SpA, its Italian unit, to rival Wind SpA
rather than proceed with an IPO as earlier planned.
Modulators
Optical Technologies has annual sales of $25 million and employs 250 people. The company
makes equipment such as modulators, lasers and fiber gratings which are used to build optical
networks.
Pirelli shares rose 0.18 euro, or 6 percent, to 3.15 -- a 26- month high -- as trading began in Milan.
Pirelli & C., which controls Pirelli, gained as much as 9.8 percent, to 2.97 euros. Both shares later
rose as much as 10 percent and were temporarily suspended from trading.
Pirelli shares have risen more than 20 percent this year, beating the 8.2 percent gain in Milan's
all-share Mibtel Index and bringing its market value to about 6.5 billion euros. Pirelli's U.S.-traded
shares rose almost 12 percent yesterday to 3 1/8.
The transaction is smaller than acquisitions that Corning considered earlier this year. Corning will
look for additional purchases to compete against rivals, Josephthal & Co. analyst Lawrence
Harris said before the announcement.
``I would not anticipate that this would be their last transaction,'' said Harris, who has a ``buy''
recommendation on Corning. ``They've indicated their interest to become a more complete
supplier.''
Selling Securities
Corning said it will raise the cash for the acquisition by selling stock and convertible debt
securities. The details of the financing, with is being managed by Goldman, Sachs & Co., have
not been decided, it added.
New York-based Corning said it will make an initial payment of about $3.4 billion. A further $180
million will be paid on the ``achievement of certain business milestones,'' the company added.
Pirelli is selling at a time when telecommunications equipment companies are spending to acquire
laser amplifiers, switches and other parts to build faster networks.
The company sold its optical systems business in February to Cisco Systems Inc. for about
$1.7 billion in stock and debt. As part of that transaction, Cisco agreed to buy the 10 percent
stake in Optical Technology as well as an underwater cable business owned by Pirelli.
JDS Uniphase Corp., the largest seller of optical components, in July agreed to purchase rival
SDL Inc. for more than $36 billion, beating a bid by Corning.
Corning also was in talks to buy Nortel Networks Corp.'s components business for about $100
billion. The talks collapsed in July.
Sales Seen Doubling
Corning expects sales of its optical parts to double to $1 billion this year. Sales at Milan-based
Pirelli's cables and systems business -- which includes energy cables --accounted for 60 percent
of total sales of 6.5 billion euros ($5.74 billion) last year.
Industry-wide sales of optical components are forecast to swell to $23.1 billion in 2003 from $6.7
billion last year, according to researcher RHK Inc.
Pirelli already has teamed with Corning in manufacturing fiber-optic cables for the U.S. market.
Corning provides the fiber that carries signals through cables produced by Pirelli's North American
unit.
Corning, the fifth-best performing stock on the Standard & Poor's 500 Index this year, has more
than doubled. The shares closed at $322.88 in New York Stock Exchange trading yesterday.
Pirelli was advised by Lazard LLC and Merrill Lynch & Co. Corning was advised by Goldman
Sachs Group Inc. and Chase Manhattan Corp. |
