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 user 2005-09-08 at 1:05:00 pm Views: 52
  • #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

    “  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
    business units.

    .  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.”

      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.

    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
    its own.