Kodak Edges Toward Bankruptcy

Jan. 6, 2012
Company employs 19,000

Eastman Kodak, the company which brought photography to the masses a century ago, faces a gloomy future amid new reports that it is on the edge of bankruptcy. Never able to rebuild after the digital wave blew its core film business away from the mass market, the Wall Street Journal reported on Jan. 5 that Kodak has already begun preparing to ask for protection from creditors.

On Jan. 4 the New York Stock Exchange told the company, once one of the fabled 30 Dow Jones blue chips, that it faces delisting from the exchange if it cannot get its stock price back above $1.00 level. In its heyday Kodak shares topped $80 in 1996 -- just at the outset of the digital photo revolution that eventually replaced the need for consumers to buy Kodak film, once a virtual monopoly in the U.S. market.

On Jan. 4 its share price plunged 28% to 47 cents a share; on Jan. 5 it sank another 10.6% to 42 cents as Moody's downgraded the company's debt rating to a very low Caa3, citing "a heightened probability of a bankruptcy over the near term." And on Jan. 5 the company's chief communications officer quit, following in the wake of three board directors in the past two weeks.

The Wall Street Journal said the company is still hoping that it can sell off some of its valuable patent portfolio to raise money. But if that last-ditch effort fails, it could file for bankruptcy under Chapter 11 protection, later this month or in February, the Journal said citing sources familiar with the issue.

That would place the jobs of its 19,000 employees in question. At its height in the 1980s, it had 145,000 workers.

Kodak declined to comment on the reports, but its books have been awash with red ink for years. The last time it reported a net profit was the small gain in 2007. Its steady decline was already marked when it was dropped from the prestigious Dow Jones Industrial Average of 30 top U.S. companies in 2004.

Founded in 1892 by inventor George Eastman, Kodak developed handheld "Brownie" cameras that were sold at popular prices, and furnished the film that would keep consumers pumping profits into the country for decades. Three generations of Americans and many in other countries learned to snap photos with Brownies. And "Kodak Moment," the company's advertising catchphrase for its film, was embedded deep into the vernacular.

The company meanwhile was lauded as one of the country's top technology innovators -- the Apple or Google of its time. Ironically, it pioneered research into digital photography beginning in the mid-1970s. But it was Asian electronics manufacturers that stole a march in that market in the 1990s as Kodak failed to see the need to break from its old business lines.

"They were the ones who invented the digital camera, but they didn't believe in it," said Gregori Volokhine of Meeschaert Capital Markets.

In September Kodak hired the law firm Jones Day as advisors for restructuring, though many analysts noted that the firm also advises bankruptcies. Kodak though sought to shore up its finances by selling often some of its huge portfolio of patents, including in digital imaging. That could bring substantial cash and buy time, though Moody's said the threat of bankruptcy will make such sales more difficult.

"But when one is a desperate seller, the buyers have no interest in rushing because it will be cheaper when Kodak is completely on the floor," said Volokhine.

"The problem with a bankruptcy is that it does nothing to increase the value of Kodak's patents," said Douglas McIntyre of 247WallSt.com. "If they have a very large value, Kodak would have gotten that already. It has had months to complete a process to use its intellectual property to bolster its balance sheet. That has not happened."

Copyright Agence France-Presse, 2011

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