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Nortel, Corning mull deal
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July 24, 2000: 3:54 p.m. ET
Corning reportedly discussing purchase of Nortel optical unit for up to $100B
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NEW YORK (CNNfn) - Nortel Networks Corp. and Corning Inc. are discussing the possible sale of Nortel's optical equipment arm to Corning, according to a source familiar with the negotiations, in a transaction that reportedly could be worth up to $100 billion.
Details of any deal could not be learned, but Nortel (NT: Research, Estimates) could end up owning a 50 percent stake in Corning (GLW: Research, Estimates) in a transaction worth as much as $100 billion, the Wall Street Journal reported.
 Separately, Nortel on Monday said it would spend roughly $1.9 billion over the next 18 months to double its capacity to build optical-networking systems and components. The investment will add 9,600 jobs in Canada, the United Kingdom, the United States and Australia. Nortel estimates that its global optical components business will have pro forma revenue of about $5.2 billion in 2000.
Citing unnamed people close to the talks, the newspaper said the negotiations face a number of hurdles, and there was no guarantee of a sale being finalized. It also said Corning, N.Y.-based Corning would retain its independence.
The share prices of both firms have rocketed this year as investors have re-evaluated the outlook for high-tech equipment makers. Recent deals, including JDS Uniphase Corp.'s (JDSU: Research, Estimates) proposed $41 billion purchase of SDL Inc. (SDLI: Research, Estimates) two weeks ago, have highlighted the merger trend in the sector.
Brampton, Ontario-based Nortel's optical equipment arm makes lasers and other equipment for transmitting data along fiber-optic cable networks.
Nortel, the world's No. 2 maker of telecommunications equipment, is monetizing the value of its components business, analysts said. Rival JDS Uniphase receives a high public market valuation for its business while Nortel's components unit is hidden within the overall company.
"This is good for Nortel that they're getting such a strong valuation for its business," said analyst David Heger of A.G. Edwards & Sons Inc. "They get a majority position and a tight relationship with an optical components supplier."
A Nortel/Corning deal would come after Lucent Technology's decision last week to spin off its microelectronics unit. The division could be valued at as much as $100 billion, analysts said. The company also plans to launch an initial public offering of up to 20 percent of the division that could raise $20 billion.
 A deal with Nortel would further Corning's capability in optical components and keep it abreast of rival JDS, Heger said. Corning was interested in SDL but didn't move fast enough and lost out to JDS, analysts said.
"Corning wants to be a player in optical components space," Michael Neiberg of Chase H&Q said. "Their biggest competitor is JDS."
On July 17, Corning reported fiscal second-quarter earnings, excluding special items, of $271.1 million, or 94 cents a share, beating Wall Street expectations of 80 cents a share.
Corning fell 32-1/4 to 251, while Nortel fell 5/16 to 80-15/16 in afternoon trading Monday. 
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Corning
Nortel Networks
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