PDA

View Full Version : Emerging Kodak



Pages : 1 [2] 3 4

Darkroom317
03-16-2013, 10:52 AM
Buying stock in Kodak prior to their emerging from bankruptcy is absolutely, without a doubt, the worst thing one could possibly contemplate. To begin with, even purchasing 100% of the shares will not give you control. The company is in bankruptcy, and control is now formally in the hands of the court and effectively in the hands of the creditors. Shareholders are powerless in this situation.

Furthermore, the chance that shareholders will retain any value when the company emerges from bankruptcy is zero. For example, suppose you were to invest, let us say, $10,000,000 in kodak shares today and hold them until the company emerges from bankruptcy. When the company emerges from bankruptcy your shares will have a value of $0.00, that's zero, as in absolute zero, as in not worth even one penny.

This is not a good investment strategy.

It all comes down to how things work in a bankruptcy. Without going into much detail, in a bankruptcy there is a sort of prioritization that takes place for claims on company resources. Shareholders are last in line. This means that every class ahead of the shareholders must be made whole before the shareholders get anything. Since the company owes more money than the value of its assets, the current shareholders will be left out in the cold. If there is to be an operating company at the end of all this it will not be owned by the current shareholders.

The typical scenario is for the old shares to be cancelled, and new shares are to be issued to the current bond holders. Thus, the current shareholders get nothing, and the company will end up being owned by the current bond holders.

I was joking

AgX
03-16-2013, 10:57 AM
In case Kodak resurrects from bancruptsy as the same legal entity, the old shareholders are still in hold of their part/share of Kodak.
This of course does not say anything of a future stock price nor of a future dividend from Kodak.



Without going into much detail, in a bankruptcy there is a sort of prioritization that takes place for claims on company resources. Shareholders are last in line. This means that every class ahead of the shareholders must be made whole before the shareholders get anything. Since the company owes more money than the value of its assets, the current shareholders will be left out in the cold. If there is to be an operating company at the end of all this it will not be owned by the current shareholders.

Shareholders are debtors, how could they get their money back anyway?




Or do I miss something?

bobwysiwyg
03-16-2013, 12:48 PM
It's my understanding that existing common shares generally become worthless as a result emerging from Chapter 11 bankruptcy. Sell if you got'm. ;)

alanrockwood
03-16-2013, 01:02 PM
In case Kodak resurrects from bancruptsy as the same legal entity, the old shareholders are still in hold of their part/share of Kodak.
This of course does not say anything of a future stock price nor of a future dividend from Kodak.




Shareholders are debtors, how could they get their money back anyway?




Or do I miss something?

I see you are from Germany. Perhaps bankruptcy laws are different there. Under US bankruptcy law the shareholder is last in line to get anything in a bankruptcy. It is virtually unheard of for shareholders to receive anything in a bankruptcy. Exceptions to this generalization are EXTREMELY rare and even those few rare exceptions virtually always involve special circumstances, such as the Texaco bankruptcy. I believe the shareholders survived that one.

The priority for payout in a bankruptcy runs roughly like this. The government gets paid first (taxes). Then wages to workers get paid, including any back wages owed. Then various forms of secured debt, i.e. debt backed by collateral, then unsecured debt. At the very tail end of the priority list come the shareholders. If the creditors don't get paid what they are owed then the shareholders lose ownership of the company. Their shares are cancelled and become worthless. If the company emerges as an operating company it does so under new ownership, usually being owned by the former creditors as partial compensation for not having been paid all the money they were owed.

alanrockwood
03-16-2013, 01:05 PM
I was joking

Sorry, I didn't realize you were joking.

alanrockwood
03-16-2013, 01:08 PM
By the way, the good news for the owners of the corporation (the shareholders) is that they are not personally responsible for the money the company owes. Thus, they may lose every penny the spent buying shares, but at least they don't have to pay the company's debts by dipping into their own pocket. That's part of the basic deal a shareholder signs up for.

railwayman3
03-16-2013, 01:15 PM
I see you are from Germany. Perhaps bankruptcy laws are different there. Under US bankruptcy law the shareholder is last in line to get anything in a bankruptcy. It is virtually unheard of for shareholders to receive anything in a bankruptcy. Exceptions to this generalization are EXTREMELY rare and even those few rare exceptions virtually always involve special circumstances, such as the Texaco bankruptcy. I believe the shareholders survived that one.

The priority for payout in a bankruptcy runs roughly like this. The government gets paid first (taxes). Then wages to workers get paid, including any back wages owed. Then various forms of secured debt, i.e. debt backed by collateral, then unsecured debt. At the very tail end of the priority list come the shareholders. If the creditors don't get paid what they are owed then the shareholders lose ownership of the company. Their shares are cancelled and become worthless. If the company emerges as an operating company it does so under new ownership, usually being owned by the former creditors as partial compensation for not having been paid all the money they were owed.

Almost exactly the same procedure and priorities apply in the U.K.

railwayman3
03-16-2013, 01:21 PM
In case Kodak resurrects from bancruptsy as the same legal entity, the old shareholders are still in hold of their part/share of Kodak.
This of course does not say anything of a future stock price nor of a future dividend from Kodak.




Shareholders are debtors, how could they get their money back anyway?




Or do I miss something?

The bankruptcy may involve some form of restructuring or issue of new classes of shares, so the old shareholders may or may not still have a holding in the company.

Technically, shareholders are the last-in-line of the creditors, not debtors. (Debtors are those who owe money to the company. In Victorian times, debtors who didn't pay what they owed to others could be put in "Debtors Prisons"...that's how we were taught to remember the difference when I was a student! :laugh: )

AgX
03-16-2013, 02:45 PM
Interesting. In Germany the shareholders are regarded in case of insolvency as debtors, as part of the owners.
However they are spared from paying to the creditors. The shareholder only stands for what he brought into the company.

Roger Cole
03-16-2013, 03:34 PM
I've held stock in a company that went bankrupt. Well, actually I saw it coming and sold for pennies on the dollar and got a few hundred for my roughly bought-for-$3k of stock. Those who held out all the way, if anyone was foolish enough to do so, lost it all. (Don't ask, it's too embarrassing - chalk it up a techie betting on a tech recovery based on knowledge of the product, not economics at the time.)

The only reason to buy stock in a company that's in bankruptcy would be for a quick flip since the penny stock prices can fluctuate rapidly and even a small amount of change is a large percentage at such prices. So if you feel lucky and want to gamble, the odds (if you watch a bit and have an idea) are probably no worse than Vegas, or not much worse anyway.

MattKing
03-16-2013, 08:02 PM
The priority for payout in a bankruptcy runs roughly like this. The government gets paid first (taxes). Then wages to workers get paid, including any back wages owed. Then various forms of secured debt, i.e. debt backed by collateral, then unsecured debt. At the very tail end of the priority list come the shareholders. If the creditors don't get paid what they are owed then the shareholders lose ownership of the company. Their shares are cancelled and become worthless. If the company emerges as an operating company it does so under new ownership, usually being owned by the former creditors as partial compensation for not having been paid all the money they were owed.

You missed the fees for the trustee in bankruptcy - they usually are near the top of the list.

And at the risk of being too technical, in some cases shareholders hold "preferred" shares, which are actually more like debt instruments, and are therefore given a portion of what is available to unsecured creditors (if anything).

It is true that control is essentially in the hands of the bankruptcy court. If, however, the right person or entity (think deep pockets and a history of business success) took over a controlling shareholding, it might very well affect how the bankruptcy proceeds.

ambaker
03-16-2013, 09:38 PM
At this point to buy the company, and take control, you would have to get the court's approval to do so. The current stockholders no longer have any control.

What I really love about the whole deal is that the same people who could not manage to succeed with the company when they were profitable, will now try to succeed with much fewer resources.


Sent from my iPad using Tapatalk HD

RattyMouse
03-17-2013, 05:04 AM
What I really love about the whole deal is that the same people who could not manage to succeed with the company when they were profitable, will now try to succeed with much fewer resources.




You doubt the ability of Perez to turn around Kodak??? :blink::eek::unsure:

Roger Cole
03-17-2013, 10:18 AM
I doubt the ability of Perez to turn around a go kart inside a football field.

MattKing
03-17-2013, 01:51 PM
I put a lot more blame on the various institutional/big fund investors and the board members that they put on the board, with instructions to turn around the short-term profit outlook.

Prof_Pixel
03-17-2013, 03:01 PM
I doubt the ability of Perez to turn around a go kart inside a football field.

As I said in a posting back in August 2012:

I agree that the management is more concerned with their pockets than saving the company. They are making one monumental blunder after another.

I saw the problems starting in the later '60s with the rise in MBAs with no product experience in management positions. As I've said many times, "Two things have led to the downfall of US Corporations: the MBA and the spreadsheet." With the computer spreadsheet, the MBAs were able to 'fiddle' with the figures and go for short term gains at the expense of long term gains.

Car Guys vs. Bean Counters: The Battle for the Soul of American Business by Bob Lutz talks about the issue in the auto business, and I certainly saw it at Kodak.

Ken Nadvornick
03-17-2013, 04:10 PM
What I really love about the whole deal is that the same people who could not manage to succeed with the company when they were profitable, will now try to succeed with much fewer resources.


You doubt the ability of Perez to turn around Kodak??? :blink::eek::unsure:

At this point no one in their right mind would take the job.

Ken

Ian Grant
03-17-2013, 04:21 PM
As I said in a posting back in August 2012:

I agree that the management is more concerned with their pockets than saving the company. They are making one monumental blunder after another.

I saw the problems starting in the later '60s with the rise in MBAs with no product experience in management positions. As I've said many times, "Two things have led to the downfall of US Corporations: the MBA and the spreadsheet." With the computer spreadsheet, the MBAs were able to 'fiddle' with the figures and go for short term gains at the expense of long term gains.

Car Guys vs. Bean Counters: The Battle for the Soul of American Business by Bob Lutz talks about the issue in the auto business, and I certainly saw it at Kodak.

You've hit the nail on the head. It's something my father felt was going wrong in the late 1960's and in fact he was appointed Managing Director of a large UK company to help prevent the short-termism that the accountants were advocating, he was an engineer and production director previosly.

It's not just a US problem it's been just as bad in the UK.

Ian

Michael R 1974
03-18-2013, 07:58 AM
Exactly right and it is the same in Canada. I've seen it over and over. The effort goes into "value surfacing" via structuring, Corporate Finance, M&A etc. Organic - ie actual - growth, innovation etc. takes investment. Sadly, analysts see only the short term, and they drive business decisions. You'd have thought by now people would realize analysts don't know anything and are only in it quarter by quarter, but that's people for you.

DREW WILEY
03-18-2013, 11:59 AM
We've sucessfully hired a few MBA's in our company. They get to sweep floors a few years, then might
be taught to stock shelves. If it appears they can work, they might eventually be assigned paperwork
tasks and gradually acquire a little actual responsibility. Any corporation stupid enough to drop them
into anything resembling a top tier is doomed.