Earlier this year, Corning's (NYSE: GLW) Optical Communications business finally passed Display Technologies to become its single largest segment -- a shift made possible in recent quarters by telecom giants' enormous investments in their next-generation networks. But if Corning's latest acquisition is any indication, it's only just getting started. Earlier this week, the glass-technology specialist announced it has agreed to purchase substantially all of 3M's (NYSE: MMM) Communication Markets Division for roughly $900 million in cash.
IMAGE SOURCE: CORNING.
The headline numbers
For perspective, Corning's optical business generated sales of $917 million in its latest quarter, good for year-over-year growth of 15%. In September, Corning also reached a staggering milestone of 1 billion kilometers of optical fiber sold, with The Wilmington Star calling it "the material that revolutionized high-speed communication around the globe."
But with the 3M purchase, Corning is acquiring approximately $400 million in incremental annual sales of high-bandwidth and optical-fiber products, which means a nearly 11% boost to the optical business' top line from its current annual run rate. And it's doing so at a reasonable valuation of less than seven times the division's estimated forward adjusted EBITDA -- that is, at least, including estimated annual run-rate synergies to be realized following the acquisition. As such, the purchase should be accretive to Corning's per-share earnings to the tune of $0.07 to $0.09 in the year following its close.
The bigger picture
Corning investors shouldn't be entirely surprised by the purchase. In late 2015, Corning outlined a multi-year strategic capital-allocation framework under which it pledged to not only return at least $12.5 billion to shareholders through stock repurchases and dividends through 2019, but also invest $10 billion toward sustaining industry leadership and fostering new growth opportunities. This 3M deal falls within the latter sum, where Corning allocated roughly $1 billion to $3 billion for strategic acquisitions.
Corning Optical Communications executive VP Clark Kinlin elaborated:
Corning leads in optical passive components and solutions. This transaction expands both our global market reach and our high-bandwidth portfolio. It also provides new co-innovation opportunities and enhances our ability to serve customers globally. As the industry's only true end-to-end manufacturer and supplier of optical solutions, we look forward to bringing these two strong organizations together and welcoming a group of outstanding employees.