Kodak Investor Forms Shareholder Committee
February 02, 2012 Business News(PRLEAP.COM) NEW YORK, February 2, 2012 — Wapiti Partners, L.P. beneficial owner of more than 1,000,000 common shares of Eastman Kodak announced today that it formed an ad-hoc equity committee of common shareholders. The committee was formed to protect the substantial interests of common shareholders and will seek to organize an effort to ask the United States Trustee to appoint an official equity committee. Wapiti is taking this action because Wapiti's analysis of Kodak's assets and liabilities indicate there is at least $979 million ($3.63 per share) of value (net of all debt and legacy liabilities) available for common shareholders. The recent history of bankrupt companies demonstrates that a minimal amount of effort and fiduciary responsibility is invested in protecting the interests of common shareholders. When a significant value is available for the common stock and shareholders are organized and form an equity committee, the Courts are less likely to ignore the value owed to common shareholders.
Kodak is an "asset-rich company" which was forced to file for bankruptcy because of a liquidity crisis and the market valuation of Kodak is anchored by this liquidity crisis. At the same time no effort to form an equity committee is noticeable in the public record. Wapiti believes this is a potentially lethal combination for shareholders. Lance Laifer, CEO of Wapiti said, "The danger of this, as we have seen in past bankruptcies such as Six Flags, is the court will anchor its thinking on valuation based on market valuation. The situation will be exacerbated by testimonies of supposed experts who are paid by constituencies, such as bondholders, standing to benefit from lower valuations. Many times in these situations, shareholders do not even get to participate in the valuation-charade-debate-game. Excuses are given but the primary reason shareholders do not get to participate in this game is because they do not get organized until too late in the bankruptcy. At that point, bankruptcy judges are reluctant to slow down the bankruptcy-gravy-train, which is loaded with fees for professionals and exorbitant awards of equity and bonuses for management."
Antonio M. Perez, Kodak's Chairman and CEO recently stated that Kodak is an "asset-rich company". Wapiti's analysis concurs with Mr. Perez's statement. In summary, Wapiti valued the assets of Kodak to total at least $6.2 billion and the debt equivalent liabilities of Kodak to total $5.2 billion. Below is the breakdown by primary asset and liability category:
Core Business Line - Valuation: $1.5 billion. Valued at 7X's 2011 EBITDA. 2011 revenue of $2,297 million and EBITDA of $214 million grew from $2,250 million and $210 million in 2010. By way of comparison: NCR trades at 11.3X's EBITDA, Diebold, trades at 8.7X's EBITDA and Verifone trades at 11.4X's EBITDA. This business line includes Retail Systems Solutions, Document Scanners and Digital Plates.
Growth Business Line - Valuation: $600 million. 2011 Revenue of $1,187 million and EBITDA loss of $415 million. 2010 Revenue of $1,061 million and EBITDA loss of $380. Latest two year EBITDA loss of $795 million. This business line includes Consumer Inkjet, Digital Printing Solutions, Workflow Software and Services and Prepackaging Solutions. Management refers to losses incurred in this business line as a "continued investment in our growth initiatives". On the second quarter 2011 conference call with investors, Mr. Perez stated, "As I said before, consumer inkjet could start making money this quarter if we want it. All we have to do is slow down the growth of printers. Is that the best thing for our shareholders long term? Probably not. That's why we're not doing it. We have all our modeling that looks at what is the ideal balancing of investing and getting return, and that's what we're following..could we do it differently? Of course we can do it differently. We can do that with any of the investments we have. But our ink gross profit has doubled from last year. Next year (2012) it's going to be a huge amount of money…It's a huge number. You will see this is going to be a gorgeous business for this Company." On the third quarter call with investors on November 3, 2011, Mr Perez stated that, "these four growth initiatives are very promising and have tremendous power to create very significant value for our shareholders. They are a central part of Kodak's transition to a digital, profitable, and sustainable Company." Valuing this business is difficult for Wapiti because of the money losing nature of the businesses to date. Given the lack of transparency of the individual components of this business line Wapiti valued the business based on investments to date.
Manage for Cash/Value Business Line - Valuation: $500 million. 2011 Revenue (ex Intellectual Property) $2,474 million. 2010 Revenue (ex Intellectual Property) $2,474. EBITDA (ex Intellectual Property) not provided. Businesses in this business line include: Digital Capture & Devices, Paper & Output Services, Entertainment Imaging, Commercial Film, Consumer Film, Kodak Gallery and Event Imaging Solutions. Entertainment Imaging, approximately a $700 million revenue business, which has the number one market share in its business and is cash generative is one of the jewels in this business line. This business line was valued on a multiple of revenue basis.To more accurately assess the value of this business line more transparency is required.
Patent Portfolio - Digital Capture and Kodak Imaging Systems - Valuation: $2.4 billion. This portfolio of 1,100 patents (out of Kodak's total portfolio of 10,700 patents) was valued at $2.2 to $2.6 billion by 284 Partners, LLC as referred to in the Kodak Public Lender Presentation. According to the Wall Street Journal, "Kodak believes the patents could be worth more, as that valuation doesn't take into account strategic interest from possible suitors."
Patent Portfolio - excluding Digital Capture and Kodak Imaging Systems Patents. Valuation: $150 million. This portfolio of 9,600 patents underlies many of the existing businesses. The company continues to annually spend between $300 million and $500 million in Research & Development efforts. 590 priority applications were filed in 2011 and 483 in 2010.
Kodak brand name for licensing - Valuation: unknown. Under the leadership of Mr. Perez, Kodak has expanded its footprint beyond film. The Kodak brand name, which is one of the most recognizable and favored consumer names in the world, has a halo which can benefit many companies in the technology and electronic industries outside of the businesses which Kodak operates (or has operated) in. Licensing the Kodak name for use on computers, tablets, smartphones, televisions, binoculars, telescopes, e-readers, mp3 players and many others is a considerable opportunity for the company going forward.
Real Estate - Valuation: $207 million. According to the most recent Kodak 10-Q the Company's Property Plant and Equipment has a book value of $948 million. In its Public Lender Presentation Kodak revealed that the collateral provided for the Term Loan included the Company's corporate headquarters in Rochester NY and 23 domestic properties in eight states. According to this presentation the net book value of U.S. real property totaled approximately $207 million. Wapiti believes the long held property, a significant portion of which was purchased when George Eastman himself ran the Company, is on the books at a fraction of its true value but will need more information to raise its valuation. Most prominently the Company owns what is reputed to be the Northeast's largest industrial complex, the 1,200 acre Eastman Business Park, which includes 300 greenfield acres.
NOL and Tax Credits - Valuation: unknown. Kodak currently has approximately $1.9 billion of Net Operating Losses ("NOLs") for U.S. federal income tax purposes and $656 million of foreign tax credits. Wapiti's analysis assumes that a significant amount of the proceeds from the sale of the Digital Capture and Kodak Imaging Systems patents are not taxed because of losses incurred in settlement payments for Non-U.S. Pension Liabilities and Other Post Employment benefit payments. Any gains on the portfolio which are not shielded by payments for these legacy liabilities are assumed to be shielded by Kodak's NOLs. The NOL's and tax credits should be valued based on the present value savings of Kodak's future income stream. This value should be substantial (close to $500 million or almost $2 per share) but it is too preliminary to be included without access to company projections.
Cash and Cash Equivalents - Valuation: $862 million. Valued at book value on September 30, 2011. This is traditionally a low point in the Company's cash balance.
Debt and Prepetition Legacy Liabilities - Valuation: $5.2 billion. Comprised of $2,213 million of Pro-Forma Total Debt (see page 22 of Kodak's Public Lender Presentation); $425 million of trade debt; $1.2 billion in non-U.S. pension liabilities, $1.3 billion of Other Post-Employment Benefit and approximately $100 million in environmental liabilities.
For more information or if you would be interested in serving on an official committee of equity holders please contact Lance Laifer at email@example.com
Wapiti Capital Management
Wapiti Capital Management