CORNING CASE
UVA-F-1339
Version 2.6
CORNING, INC.: ZERO COUPON CONVERTIBLE DEBENTURES
DUE NOVEMBER 8, 2015 (A)
On November 8, 2000, Corning announced that it would issue $2.7 billion in zero-coupon convertible debentures priced at $741.923 per $1,000 principal amount. The initial public offering (IPO) price yielded 2% per annum to maturity, compounded semiannually. A summary of terms is given in Exhibit 1. Concurrent with the offering, Corning also conducted a separate public offering of 30 million shares of its common stock at $71.25 per share.1 Neither offering was contingent upon completion of the other. The entire financing would raise around $4.8 billion. Corning planned to use the proceeds of both offerings to fund its acquisition of Pirelli
S.p.A.’s 90% interest in Optical Technologies USA, Pirelli’s optical-components and -devices business. The total acquisition consideration was approximately $3.6 billion in cash. The acquisition agreement had been announced on September 27, 2000, and pended regulatory approval. Observers agreed, however, that the acquisition was likely to be completed.
The issue of the Corning zero-coupon convertibles came to the attention of
Julianna Coopers, an investment analyst at the Paradigm Group of mutual funds.
The Paradigm Group offered 36 different funds and managed more than $50 billion in assets. Coopers and her group handled Paradigm’s Convertible
Securities Fund, which sought “high returns through a combination of current income and capital appreciation.”
Coopers had been tasked with assessing the new issue of Corning convertibles. That day, she needed to decide whether to recommend purchasing some of the bonds for the Convertible
Securities Fund. Her task was to assess the risk of the bond issue, and judge the adequacy of the yield, offering price, and the conversion terms.
1
www.ipo.com.
This case was prepared by Jessica Chan, under the supervision of Robert F. Bruner. It was written as a basis for class discussion rather than to
Version 2.6
CORNING, INC.: ZERO COUPON CONVERTIBLE DEBENTURES
DUE NOVEMBER 8, 2015 (A)
On November 8, 2000, Corning announced that it would issue $2.7 billion in zero-coupon convertible debentures priced at $741.923 per $1,000 principal amount. The initial public offering (IPO) price yielded 2% per annum to maturity, compounded semiannually. A summary of terms is given in Exhibit 1. Concurrent with the offering, Corning also conducted a separate public offering of 30 million shares of its common stock at $71.25 per share.1 Neither offering was contingent upon completion of the other. The entire financing would raise around $4.8 billion. Corning planned to use the proceeds of both offerings to fund its acquisition of Pirelli
S.p.A.’s 90% interest in Optical Technologies USA, Pirelli’s optical-components and -devices business. The total acquisition consideration was approximately $3.6 billion in cash. The acquisition agreement had been announced on September 27, 2000, and pended regulatory approval. Observers agreed, however, that the acquisition was likely to be completed.
The issue of the Corning zero-coupon convertibles came to the attention of
Julianna Coopers, an investment analyst at the Paradigm Group of mutual funds.
The Paradigm Group offered 36 different funds and managed more than $50 billion in assets. Coopers and her group handled Paradigm’s Convertible
Securities Fund, which sought “high returns through a combination of current income and capital appreciation.”
Coopers had been tasked with assessing the new issue of Corning convertibles. That day, she needed to decide whether to recommend purchasing some of the bonds for the Convertible
Securities Fund. Her task was to assess the risk of the bond issue, and judge the adequacy of the yield, offering price, and the conversion terms.
1
www.ipo.com.
This case was prepared by Jessica Chan, under the supervision of Robert F. Bruner. It was written as a basis for class discussion rather than to