I'm not seeing vulture capitalists like Carl Icahn in the picture. He's likely poised to squeeze value out of RIM but Kodak? Where's the value?
I'd like to gently sprinkle some cold water on hpulley's optimism:
The $3B figure for patents is too high. One research firm published this guess, but subsequent patent sales by others have shown the patent buying frenzy to be short lived. Kodak has been monetizing these patents for some time, and most major companies already have licenses. Those who won't pay have been doing well in the courts to squash the patents. Expect no more than $2B, and could be under $1B
Kodak only has 6-10 months before serious cash flow issues appear. The debt is junk status and sells for 25-45 cents on the dollar. Their pension liabilities are much greater than they admit due to their overly optimistic predictions on rate of return (~8.7%). A more realistic assumption would have their losses increase by at least 10% a year and adds $2B to total liabilities.
Kodak expects their turnaround to take another three years. To avoid a cash crunch they will be forced to sell not only their patents, but other valuable assets as well. They have already sold off many divisions, including the space and OLED divisions to name a few.
The patent sale won't net them as much cash as you think. Due to Kodak's debt obligations and terms (~$1.2B), assets sales such as this cannot be used to fund ongoing operations and must first go toward repaying debt. The cash from patent sales won't tide them over through the restructuring plan, and will buy them only a maximum of 2 years cash.
Can the company be restructured in bankruptcy?: Bankruptcy would slow the cash outflow enough for kodak to finish the restructuring, assuming the boat can be turned around.
Is liquidation still a possibility: ?
I really don't know if Kodak has any hope of restructuring with a plan that allows its film division to continue operations. Most of the "value" of the company seems to be in its display technology patents - but a good 'ol fashioned Chapter 7 "smash and grab" auction could determine who receives those.
It's unfortunate, but as far as Kodak's debt holders are concerned the company may be worth more dead than alive.
One has to remember that the most valuable quantity that a company has is not its patent library nor its brand. All of those things have fiat values, especially if the company is public. It is the quality of its people right now... and to a much lesser extent the company history. The patents come form people and those people still have the same brain cells. They may be tired of fighting and jaded and all that, but... one hopes that some of the core creative abilities are still there in the bowels of the company. If not then liquidate all and forget it, like polaroid.
If I were on the EK board I would march a bunch of venture capitalists into the room, get them to sign NDAs, show them the patents, and award the name EK to the best idea to keep some fragment of the company alive. The harsh reality is that the company as a whole is probably not viable.
I am assuming there is some really nice IP in there somewhere which can generate the next big thing. I could be wrong, it could be one big mirage. The venture capital will tell us which is true, and very soon.
I think seeking Ch. 11 protection sooner rather than later is the right thing to do because we're again faced with the potential of a serious global banking crisis - which could make it much, much harder for them to get "debtor-in-possession" financing.
Given that all of their operations remain in cyclical or secular decline and the risk-aversion of lenders, yes, I think Ch. 7 liquidation is a definite possibility. In fact, Kodak's debtholders may prefer that the company go that route immediately because Kodak's assets are not likely to appreciate as time passes.
And even if they do obtain financing for continued operations, I think that that financing would only come about as a result of a restructuring plan that breaks up the company.
I'm not sure where all of the above leaves the film division but I suspect that if Kodak film continues to be manufactured, it will have to be made outside of the USA. The current USA-based production infrastructure is now too large and there is the ongoing matter of toxic torts...
Seen in a shop in Austria last week.....current Agfa Vista 200 color negative films "Made in China".
Could we also expect to see our favorite Kodak films with this printed on their cartons, in the near future?
I think it's possible that this is actually *good* for film. Film is a well-defined product with a brand name that a company can crank out and sell. Right away. No need to reinvest in research etc. A company like 3M or Fuji, with good systems engineers, could probably reduce the production line to bare bones and robots and take the profit from the brand names alone.... for some years to come. Companies like Philip Morris know very well how to take good profit in a troubled sector during a declining market.
I would guess that some digital imaging technologies and algorithms are at the core of EK's hopes for patent sales. Who knows, maybe they have some good stuff for digital xray or whatnot. That should be portioned off and made viable as a separate entity, and not tied to film at all. That would be beneficial to both sides... film and digital.
You may be right, the patent value on paper may not approach the sale value.
With Fuji trimming its own lines I can't see them picking up Kodak's. Why would Fuji make Kodak brand films when they have their own? I don't see it unless they somehow admit that Portra is better than 400H and 160S, Ektar better than Reala.