Eastman Kodak Co’s shares lost more than half their value on Friday, as the company hired a law firm well-known for bankruptcy cases, triggering speculation the photography pioneer could file for bankruptcy.
Kodak, which delivered the first consumer camera in 1888, denied it had a bankruptcy plan, saying it was committed to meeting its obligations and is still looking for ways to "monetize" its patent portfolio.
Once synonymous with photography, Kodak has struggled with the move to digital cameras and failed to turn a profit since 2007. It has been exploring sale of its digital imaging patents, worth an estimated $2 billion, and hired investment bank Lazard in July to explore options.
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Rochester, New York-based Kodak said it had "no intention of filing for bankruptcy," after its shares plunged as much as 68 per cent to 54 cents before recovering slightly to close down 53.8 per cent at 78 cents on the New York Stock Exchange.
The company’s market value plummeted to roughly $210 million yesterday, down from a lofty height of $31 billion in February 1997, as shown by regulatory filings. The cost to insure Kodak’s debt with credit default swaps (CDS) surged on Friday as investors priced in greater bankruptcy risk.
Kodak had already scared markets on Monday, when it tapped a credit line but refused to divulge its cash position. The stock dived to a 38-year low that day.
Investors took fright again yesterday after Bloomberg reported potential buyers for its patent portfolio were cautious about going ahead with a bid, as they could risk having Kodak creditors sue them after a bankruptcy filing.
Mark Kaufman, an analyst at Rafferty Capital Markets, said Kodak urgently needed to seal a patent deal.
"I don’t believe bankruptcy is inevitable. This is a pretty valuable portfolio, they should get a good price," he said. "They need to get this (sale) out of the way. They need to sell this portfolio, raise some type of cash."
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In July, the company said it had hired Lazard to advise on strategic options for its patents -increasingly seen as lucrative assets. Bankrupt Canadian company Nortel fetched $4.5 billion in a patent sale in June, also run by Lazard. Google Inc agreed in August to buy Motorola Mobility for $12.5 billion primarily for its patent portfolio. Robert Miller, a professor at Villanova University School of Law, said filing for bankruptcy may actually end up boosting the value of a patent sale. Even if the company held a robust, public auction outside of bankruptcy, the headache of litigation still loomed if Kodak went bankrupt later, he said. Selling the assets as part of a bankruptcy court-supervised auction would solve that concern, he added.
Kodak confirmed it had hired Jones Day but did not explain why, beyond saying it was "not unusual for a company in transformation to explore all options."
Investors for the company have been up in arms about everything from its share price decline to its management.
One shareholder had asked the company’s board on Thursday to start a sales process while others sharply criticized Chief Executive Antonio Perez.
The company’s board is not considering replacing Perez at this time, according to a story in the Wall Street Journal, which cited two people familiar with the matter.
Kodak CDS costs rose to 70 per cent yesterday from 61 per cent on Thursday, data provider Markit said. That means it would cost $7 million in upfront payments, plus $500,000 a year to insure $10 million debt if Kodak debt for five years.