Business Context and Reporting Period
This Form 8-K, dated October 22, 2013, reports that Corning Incorporated (Corning) entered into a Framework Agreement with Samsung Display Co., Ltd. (SDC) to acquire SDC's interests in Samsung Corning Precision Materials Co., Ltd. (SCP), a joint venture manufacturing LCD glass in Korea. Corning currently owns 50% of SCP, while SDC owns 42.54%. The transaction aims to consolidate Corning's ownership of SCP.
Key Financial Metrics and Transaction Structure
- Transaction Value: Corning will issue approximately 1,900 shares of Fixed Rate Cumulative Convertible Preferred Stock, Series A, at an aggregate issue price of $1.9 billion to acquire SDC's interest.
- Additional Consideration: An additional $400 million in Preferred Stock is expected to be issued at closing.
- Contingent Payments: Potential payments in 2018 are capped at $665 million based on pre-2018 revenues and $100 million based on sales volumes.
- Preferred Stock Terms:
- Dividend Rate: 4.25% annual cumulative rate on the $1 million per share issue price.
- Conversion Rate: 50,000 shares of Common Stock per one share of Preferred Stock.
- Conversion Triggers: Holder option after seven years; Company option if Common Stock price exceeds $35 for 25 trading days within a 40-day period (subject to holder approval before year seven); automatic conversion rights in change of control scenarios.
- Ownership Cap: A Standstill Agreement limits the collective ownership of Corning Common Stock by Samsung, SDC, and affiliates to 9%.
Material Changes and Agreements
The filing details the entry into three primary agreements effective October 22, 2013:
- Framework Agreement: Outlines the acquisition of SDC's 42.54% stake in SCP and potential minority interests. It includes a working capital adjustment and indemnification provisions.
- Shareholder Agreement: Requires SDC to vote its converted Common Stock in accordance with Corning's board recommendations, subject to exceptions regarding change of control. It includes transfer restrictions and a requirement to dispose of shares exceeding the 9% ownership cap.
- Standstill Agreement: Restricts Samsung and SDC from taking certain actions regarding Corning's capital stock or governance. It terminates upon a change of control or after a two-year period beginning on or after the 18th anniversary of the Framework Agreement, provided ownership is below 0.30%.
Guidance, Risks, and Contingencies
Closing Conditions: The transaction is subject to customary conditions, including regulatory approvals from the Bank of Korea, accuracy of representations, and absence of governmental injunctions.
Termination: Either party may terminate the agreement if the transaction is not closed by June 30, 2014.
Risks: The filing includes standard forward-looking statement disclaimers regarding the ability to complete the transaction, obtain regulatory approvals, and the potential for unforeseen liabilities or business disruptions. The Preferred Stock is unregistered and cannot be sold in the U.S. absent registration or an exemption.
Investor Verification Checklist
- Verify the receipt of required regulatory approvals, specifically from the Bank of Korea.
- Monitor the closing date to ensure the transaction is consummated before the June 30, 2014 termination deadline.
- Review the final terms of the working capital adjustment and any potential 2018 contingent payments.
- Assess the impact of the 9% ownership cap on future strategic relationships with Samsung and SDC.
- Confirm the status of the unregistered Preferred Stock issuance under Section 4(2) of the Securities Act and Rule 506 of Regulation D.