Oh Brother! Kodak Acquisition Deal Halted
By John Oncea, Editor
By John Oncea, editor, ECM Connection
Last-minute agreement with U.K. Kodak Pension Plan trumps stalking horse bid submitted earlier by Brother Industries
Much had been written recently, including this ECM Connection news feature, about the stalking horse bid submitted by Brother Industries to acquire certain assets of Eastman Kodak’s Document Imaging business for $210 million and assumption of deferred service revenue liability of the business, which totaled approximately $67 million. Under the terms of the bid Kodak had the opportunity to seek a better deal, and the Rochester, New York-based photography pioneer announced recently it found one such deal.
As part of a “comprehensive settlement agreement with the U.K. Kodak Pension Plan (KPP), its largest creditor, with respect to its Chapter 11 Plan of Reorganization” Kodak agreed to “spin-off its Personalized Imaging and Document Imaging businesses to KPP for cash and non-cash consideration of $650 million.” As Kodak was announcing the deal, an unnamed representative from Brother was quoted by The Japan Times as saying “We were acting on the assumption that something like this could happen, but it’s a shame.”
Matthew Danernan, writing for The Democrat and Chronicle, notes that in addition to selling off the Personalized Imaging and Document Imaging businesses, Kodak can cross off another item on its bankruptcy to-do list – settling a shortfall of nearly $3 billion in its United Kingdom pension plan. Danernan notes that in addition to the $650 million sale, the U.K. pension “would write off roughly $2.8 billion in claims it has against Kodak.” Danernan also points out the “The KPP deal comes just under the wire as Kodak has set a Tuesday deadline for itself to file its plan with U.S. Bankruptcy Court spelling out how it expects to get out of its current Chapter 11 bankruptcy.”
FoxBusiness’ Matt Egan adds “The deal has been approved by the U.K. Pensions Regulator, but is still subject to review by the U.S. Bankruptcy Court.” He also quotes Steven Ross, chairman of KPP, as saying, “This settlement gives the KPP members greatly improved future prospects whilst being good for Kodak's employees, its creditors and for U.K. businesses. The businesses that we are acquiring will deliver long-term cash flows to support the plan's obligations.”
Emily Glazer and Mike Spector, writing for The Wall Street Journal, write “Some people not involved in the deal called it unusual, especially given its size,” and “The pension deal has been in the works since December 2011, before Kodak filed for Chapter 11.” During that time “Advisers and representatives for the U.K. retirees made trips to New York every two to three weeks” to negotiate the arrangement” and “designed roughly 25 different models to determine possible outlooks of the deal and to make sure the pension plan felt comfortable."
WXXI News reports analyst George Conboy, president of Brighton Securities, says this could be an ideal fit as both the UK pension plan and Kodak’s film business seem to have a limited life. “It’s interesting to note that Kodak’s UK pension fund supports a pool of retirees that of course is no longer growing, it’s a fixed pool of retirees and the cash needs of those retirees will dwindle over time. The tie into that is that Kodak’s film business also seems to have somewhat of a finite life. So it may be that Kodak’s UK pension fund, which itself will have a finite life, doesn’t mind tying some of its assets to this film business. And that may be a good pair, perhaps we’ll have stable ownership for some years going forward.”