Are we approaching the final Kodak moment? Following last week's torrid time for shares of Eastman Kodak – they fell 54 per cent to 78 cents a share – the firm felt obliged to issue a statement denying it is filing for bankruptcy as the BBC reports here.
Some of the bankruptcy speculation came about because Eastman Kodak is aiming to sell many of its patents valued at around £3bn, but potential buyers are concerned that the firm may be technically insolvent. This could then mean that the patent deals represent a 'fraudulent conveyance', which would mean that creditors of a subsequently insolvent business, could sue to try and get more money from the deals.
Economic Times reports that one way to avoid legal difficulties over patents would be for Eastman Kodak to file for bankruptcy. News also broke last week that the firm had hired consultancy Jones Daley, which among other things, specialises in bankruptcy strategies. This spooked the markets further though there was some recovery this morning.
The credit markets and agencies are similarly bearish. as the Economic Times reports, credit default swaps on the firm's debt now stand at 66.5 per cent a huge premium. Kodak's debt is rated CCC by Standard & Poor's and Caa2 by Moody's Investors Service. the ratings are the eighth levels below investment grade.
Last week, some investors were urging to firm to sell itself. The Economic Times reports that Investment Partners which owns some Kodak convertible bonds and about 220,000 shares, has written to the board suggesting a sale. a spokesman for Kodak has however dismissed talk of the bankruptcy. Gerard Meuchner said: "as we sit here today, the company has no intention of filing, and there is no change in our strategy to monetize our intellectual property. We're not concerned about fraudulent conveyance in regards to the sale of our IP portfolio."
Last week in Amateur Photographer Kodak also had to refute claims by analyst Chris Green at the Davies Murphy Group, who suggested the firm was in danger of becoming obsolete. However, whether it survives or not, the former photographic and film giant, is viewed a salutary tale about how not to adapt to changing circumstances.
In Forbes magazine, David da Silvo identifies two key distractions in the firm's history. In the 1980s, it bought Sterling Drugs – a drug company which did at least have a lead in diagnostic imaging technology, and rather bizarrely made a move into the battery market before being fought off by Eveready and Duracell. It sold out of both drugs and batteries having lost money, but it was less that and more the fact it was a huge distraction just as it should have been competing in emerging digital photography market according to da Silvio. he writes: "the problem Kodak would face in all of these new ventures is that it was too late to own any facet of the market. Whether fighting for territory in the printer or digital camera markets, it was always perilously behind well established players. the investment required to ramp up in those markets generated a debt load that outpaced the company's ability to generate revenue, and that cycle can continue for only so long." he hopes other established US brands are learning the lesson.
On International Business Times David Zielenziger lists five reasons why it would be a shame to lose Kodak one of which at least is for reasons of patriotism. First, he writes: "Japanese rivals — like Fuji (film); Canon, Nikon and Olympus (cameras); and Panasonic and Sony (consumer electronics) — are ubiquitous in all kinds of imaging. to be sure, they have great technologies and sales abilities, but those are all things they learned from Kodak. If Kodak does seek bankruptcy and then asks Lazard for help in selling off units, these companies would be first in line to pick up the valuable pieces."
Second – "It would prove that even a perception of value was wrong. Several years ago, Kohlberg Kravis Roberts, the private equity giant that may be best known for masterminding the RJRNabisco buyout, bought into Kodak and won two seats on the board. obviously, KKR wouldn't have risked its cash for no reason."
Finally here is a rather brilliant slide show from Chris Sandstrom of the Royal Institute of Technology assessing the decline although interestingly he is not sure it could have behaved much differently in facing the digital threat.
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