Corning to Buy NetOptix for About $2 Billion in Stock

Corning also announced the formation of a joint venture with Samsung Electronics.
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Updated from 9:01 a.m. EST

Corning

(GLW) - Get Report

, a leader in both the optical fiber and fiber-optic cable industries, has agreed to purchase

NetOptix

(OPTX)

for about $2 billion in stock.

Corning will exchange 0.9 shares of its stock for each share of NetOptix stock, a 10% premium to NetOptix's closing price Friday of 136. The deal is expected to close in the second quarter.

The acquisition of NetOptix, which manufactures thin film filters for use in optical networking components, is expected to be mildly dilutive to Corning's earnings per share in 2000 and accretive in 2001 and beyond, excluding goodwill.

Corning also announced the formation of a joint venture with

Samsung Electronics

, a unit of

Samsung

, one of South Korea's largest conglomerates. The new company, called

Samsung Corning Micro-Optics

, is located outside Seoul and will manufacture optical networking packaged components. The terms of the agreement were not disclosed.

"Strategically this

Corning deal is very important when combined with the joint venture," said analyst Steven Fox of

Merrill Lynch

. "It's improving the company's manufacturing capability in the optics component space, especially as demand increases." He rates Corning a medium-term accumulate and a long-term buy and his firm has done no recent underwriting for the company.

Thin film filters are difficult products to make that require a great deal of precision. "Being able to manufacture them efficiently is an increasingly important competitive advantage," Fox added.

Supply is limited as well. Corning rival

JDS Uniphase

(JDSU)

announced last month its intention to buy

E-Tek Dynamics

(ETEK)

for $15 billion. "That eliminates a supplier in a supply-constrained industry," Fox commented. "People want more than one supplier, given the manufacturing challenges." Corning is now well-placed to be another supplier.

Significantly, Corning has announced that it will report earnings on a cash basis, which excludes goodwill. Historically, it has been hesitant to make acquisitions because of dilution fears. But the sector is a very acquisitive one and many of Corning's competitors -- including

JDS Uniphase

,

Nortel Networks

(NT)

and

Lucent Technologies

(LU)

-- already report cash earnings.

Its reluctance to report earnings on this basis "has caused people to ask, 'Can they keep up? How will they make decent-sized acquisitions?'" said analyst Charles Willhoit of

J.P. Morgan

. "This tells me they are jumping on the bandwagon and are much more willing to make acquisitions."

Shares of Corning, based in Corning, N.Y., were up 2/14, or 2%, to 168 in midday trading. Shares of NetOptix, based in Sturbridge, Mass., were up 9 1/8, or 7%, to 145 1/8. They're up more than 2000% in the last 12 months. (Corning closed up 14 1/4, or 8.6%, at 180. NetOptix closed up 20, or 14.7%, at 156.)