RUMORS……….. HP TO BUY KODAK FILM ?
RUMORS……….. HP TO BUY KODAK FILM ?
2005-09-08 at 1:05:00 pm #12682
HP-Kodak: An Image That Isn’t Forming
The computing giant is
undergoing a revamp, so rumors that it will buy the film and imaging
concern, taking on big risks, don’t hold water,Call it the rumor that
won’t quit. Every couple of months, speculation bubbles up that
Hewlett-Packard is poised to acquire Eastman Kodak . The chitchat
erupted again on Sept. 1, helping drive up Kodak’s stock 5%, to $25.50
– its largest single-day jump in over a year. The stock climbed
another 3%, to $26.24, on Sept. 2.
It’s possible that Kodak is open to buyers. But don’t bet on HP as a
potential suitor. Sure, the $80 billion computing colossus, which
boasts over $14 billion in cash, could seemingly afford to snap up the
$8 billion Kodak. The companies have partnered in the past, teaming up
a half-decade ago to launch ill-fated joint venture Phogenix, which
sought to develop digital inkjet photofinishing labs for retail
outlets. And, yes, Kodak’s CEO is Antonio M. Perez, the one-time boss
of HP’s printing and imaging division.
Moreover, HP has been opening its wallet to beef up its digital imaging
business. In March, HP purchased online photo service Snapfish for an
estimated $300 million. And in August, it shelled out $230 million to
acquire assets of Scitex Vision, a market leader in superwide digital
“IT WOULD DEFY COMPREHENSION.“ But the Kodak speculation doesn’t
hold water upon closer scrutiny. Indeed, two HP insiders have told
BusinessWeek Online at various times over the summer that there’s
nothing to the oft-surfacing Kodak rumors, saying it isn’t even being
discussed at HP.
That would spell relief to some analysts who think Kodak’s long
migration from silver halide to digital imaging could burden HP’s own
imaging efforts. “It would defy comprehension to me,” says SG Cowen
analyst Richard Chu. “HP is on the offensive right now. [Acquiring
Kodak] would bring all of these legacy constraints into place.”.
The timing of any such deal for HP would also be difficult. With new
CEO Mark V. Hurd five months into his tenure, the company is
relentlessly zeroing in on cost cutting and improved execution. HP handed out 14,500 pink slips
in July — roughly 10% of its entire workforce. And Hurd has been
tweaking the organizational structure to boost performance of its
DIGITAL PHOTOGRAPHY GIANT. Acquiring Kodak, which boasted 55,000
employees at the end of fiscal 2004, would throw HP’s organization into
greater disarray. “People are looking for ways to drum up interest in
the stock,” says Richard Stice, an analyst at Standard & Poor’s
Equity Research, “but it doesn’t seem all that logical that HP would go
after this company.” Both Kodak and HP won’t comment on rumor and
Kodak does have some appeal. Despite the beating it has taken in recent
years, it still has one of the world’s best-known brand names. To many
consumers, Kodak is synonymous with photography. And despite a slow
start, Kodak has become a major player in consumer digital photography.
“They were asleep in 2001,” says Ulysses Yannas, a broker at Buckman,
Buckman and Reid, who has followed Kodak since 1967. “But now they’re
No. 1 in digital cameras in the U.S. and No. 3 worldwide.”
HEFTY PREMIUM. Kodak is also the dominant player in the
burgeoning market for storing and processing photos online, through its
Kodak Easyshare Gallery. And it is successfully convincing consumers to
print digital images at its growing network of kiosks, a business that
produces much higher margins than selling digital cameras.
Beyond consumers, Kodak also has a big stake in commercial digital
printing and in health imaging, a highly profitable business. In
addition, the company is expected to unveil a consumer inkjet printer
next year. “They’re putting a lot of money into inkjet printing,” says
Yannas, who notes that this would be of interest to HP.
But these assets would come at a major price. Kodak has a market value
of over $7 billion. Some analysts and investors expect that any
successful bidder would pay a substantial premium. Anthony Maramarco,
managing director at Babson Capital, which owns some 2 million shares
of Kodak stock, believes the company would fetch $35 to $40 per share,
or $10 billion — a hefty premium above today’s price.
NOT MUCH SENSE. Even more forbidding, perhaps, would be the hefty
liabilities and risks. Kodak is embroiled in a vast downsizing and
restructuring of its traditional film business. On July 20, the day it
announced a loss of $146 million in the second quarter, Kodak announced
plans to lay off an additional 10,000 employees, on top of the 15,000
it had previously planned to eliminate. These additional cutbacks will
push the cost of its ongoing restructuring close to $3 billion, in a
process that’s expected to run through 2007.
Given these problems, says Standard & Poor’s Stice, the idea that
someone will make a run at Kodak right now “doesn’t make a lot of
sense” — especially for a company going through a major transition of