Monday, April 29, 2013

Kodak's New Deal

Well, forget everything you read about Brother buying Kodak DI. Not going to happen. Kodak got a better deal from the U.K. Kodak Pension Plan (KPP). How much better? Well, in addition to receiving $650 million in cash and non-cash considerations (for both DI and Kodak Personalized Imaging (PI), which was also up for sale under Kodak's bankruptcy proceedings), the deal also settles $2.8 billion in claims that KPP had against Kodak Corporate.

Granted, claims in a bankruptcy case are not typically worth 100% of face value (or even close to 100%), but still, technically, Kodak Corporate came out $3.45 billion on the books ahead for divesting itself of DI (for which Brother had bid a net $277 million) and PI, which I'm estimating is a little more than twice as big as DI. (In 2012, combined, the two units generated a reported $1.46 billion in revenue, with DI somewhere around $400 million.) I'm guessing that in separate auctions, which is what was supposed to happen prior to the KPP deal, Kodak corporate would have been lucky to get $1 billion combined. So this is a big win.

On top of things, apparently one of the requirements of Kodak corporate's emerging from bankruptcy was that it settle with KPP, which was listed as Kodak's largest unsecured creditor. So, this announced sale takes care of multiple requirements. It also gives DI and PI and solid landing spot.

Dolores Kruchten, president of DI, said to think of KPP as a "financial buyer." "KPP operates independently of Kodak and has more than 1 billion British pounds of assets under its control," she said during a conference call this afternoon. "They have the capability to make investments and actively support our DI business."

Basically, it sounds like KPP plans to continue to operate DI and PI as a business. Said Steven Ross, chairman of KPP, as quoted in a press release, "The businesses that we are acquiring will deliver long-term cash flows to support the plan’s obligations. The financial stability that KPP will provide for the Personalized Imaging and Document Imaging businesses will be beneficial to those businesses’ employees, customers and partners.”


Kodak still has to submit its plan to sell DI and PI to the bankruptcy court for approval, but Kruchten said she does not anticipate any problems with closing the deal. Brother is stepping aside, and Kruchten did not have any insight into what it was being compensated for serving as the "stalking horse" in an auction that will never happen. Kruchten said that Kodak was obligated by law to announce the Brother deal, even while continuing to work on a deal with KPP.


"Brother understood that if we reached a deal like this, where we were able to bundle DI and PI together, its stalking horse bid would be terminated," said Kruchten. "The deal with KPP was not finalized when we reached an agreement with Brother. As you know, no deal is final until ink is on paper. When we made the agreement with Brother that was the only signed deal we had. You know what they say about a bird in hand."

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