Photo: flickr / Roadsidepictures
Eastman Kodak (EK), once among the preeminent companies in the U.S., is reportedly preparing to file for chapter 11 bankruptcy. This is a sad but not entirely unexpected development. In October I wrote on the evolving situation at Eastman Kodak, noting that in distressed situations there are no optimal outcomes. Rather, a distressed situation is brought to a successful conclusion when the least bad outcome is pursued and achieved.
It seems that the least bad outcome has been settled on. With its $900 million of cash being quickly eroded by persistent operating losses, Kodak must sell its prized intellectual property (IP) in order to maximise value. The prospect of utilising this IP in order to reinvent its business is gone.
Lazard has been managing the sale of 1,100 patents, and it appears that one of the drivers of the likely bankruptcy filing will be the need to complete that sale with the protections of the U.S. bankruptcy court.
In addition to facilitating asset sales, another benefit of a bankruptcy filing is the increased availability of financing. For those unfamiliar with the world of restructuring, it may seem counter-intuitive that a bankruptcy filing could result in Kodak having easier access to financing. However, given the priority assigned to debtor-in-possession loans, it makes sense that lenders would feel more comfortable providing Kodak financing to complete the sale of its most valuable IP.
Things did not need to be this way. Eastman Chemical, once viewed as the stodgy spin-off to the more dynamic Kodak, is now thriving. The key difference, unsurprisingly, between success and failure for these two corporate offspring of entrepreneur George Eastman was the willingness of Eastman Chemical to embrace change.
There is some poetry to the art of restructuring and turnaround, and at a moment like this, with one of the “must own” companies of the 70s reduced to contemplating a chapter 11 filing in order to sell off intellectual property that it was never able to sufficiently capitalise on, the bleak words of Shelley’s “Ozymandias” come to mind. We should all take a moment to look on this wreckage and despair.
About the author:
David Johnson is a partner with ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services to companies and municipalities. He can be reached at 312-505-7238 or at [email protected].