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Corning Case

Corning faced severe financial problems in 2002 due to a downturn in the telecommunications industry that significantly reduced demand for its fiber optic cable. It was not technically bankrupt but had high debt levels and needed to raise cash to avoid defaulting on loans. Issuing new equity would be better for shareholders to avoid taking on higher interest debt, but debt was still possible given Corning's strong brand and future prospects. A proposed new security that converted to equity could help align creditors and shareholders while raising needed funds, but determining fair terms would require careful valuation analysis.

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Valdemar Miguel Silva
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255 views1 page

Corning Case

Corning faced severe financial problems in 2002 due to a downturn in the telecommunications industry that significantly reduced demand for its fiber optic cable. It was not technically bankrupt but had high debt levels and needed to raise cash to avoid defaulting on loans. Issuing new equity would be better for shareholders to avoid taking on higher interest debt, but debt was still possible given Corning's strong brand and future prospects. A proposed new security that converted to equity could help align creditors and shareholders while raising needed funds, but determining fair terms would require careful valuation analysis.

Uploaded by

Valdemar Miguel Silva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Corning Case Questions 1. Explain Corning's business and how its financial policy fits it. 2.

Is Corning in financial distress in 2002? What are the causes of Corning's financial problems? 3. Is Corning on the verge of entering bankruptcy? What may drive a creditor to file for Corning's bankruptcy? What are the key areas of risk? 4. Why does Corning need to raise cash in 2002? Compare the following alternatives: issue new equity, issue new debt. Which one is more favourable for shareholders? Is it likely that the company may issue new debt? 5. Is the type of security proposed by J P Morgan more appropriate to Corning's needs? Does it align incentives between the different parties better than straight debt or equity? Is it an adequate solution for Corning's financial problems? 6. Who are the likely buyers for this type of security? Is there a market opportunity to be explored by Corning? 7. Value the proposed mandatory convertible stock. Do you agree with the proposed preferred dividend? Should it be adjusted? What if the market demands a premium of 15% only?

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