Corning Investors Cheer Restructuring, But Brian White Warns Of A Coming Selloff

Corning Incorporated GLW stock jumped to 4 percent after the company said it will sell its joint venture stake to Dow Chemical Co DOW, making it one of the biggest deals of the year. Corning announced on Friday it will exchange 50 percent interest in Dow Corning Corporation for 100 percent of the stock.

The newly formed entity that will become a wholly owned subsidiary of Corning Incorporated.

In a statement released Friday, the transaction is expected add to earnings per share and cash flows, and yield more than $1 billion in annual EBITDA. According to the statement, the deal will be completed in the first half of 2016, will increase the company's product offerings in industries like construction, consumer care and automobiles. Both Corning and Dow Corning companies are based in Midland, Michigan.

Wendell P. Weeks, chairman, chief executive officer and president, stated, "We believe this strategic realignment will create significant value for our shareholders by further focusing our portfolio and increasing our financial strength. "We are proud of Dow Corning's success, and pleased that our 72-year partnership will continue through our ownership in Hemlock Semiconductor. Today, however, Dow Corning`s silicone business lies outside the technologies and manufacturing platforms core to our strategic framework."

Related Link: EXCLUSIVE: Here's What The DowDuPont Merger Means

Short-Lived Rally

Following the announcement, Brian White of Drexel Hamilton released a warning report to Investors outlining that Friday's rally will be short lived.

White noted that Corning's largest market continues to be challenged and that its valuation remains unattractive. In Drexel Hamilton's view, the deal which provides Corning with access to $4.8 billion in cash will be largely used for stock repurchases in the future. The firm expects a majority of the cash offer to used as part of the stock repurchase program but not all of the capital.

Dow Chemical Chief Executive Officer Andrew Liveris previously stated that Dow Corning aligned with the company's new focus on higher-value products. Dow has since been transforming through its divestitures, including selling its 118-year-old chlorine business.

With the newly formed entity, Corning will will hold approximately 40 percent ownership in Hemlock Semiconductor Group and an estimated $4.8 billion in cash. The realignment is expected to be tax-free.