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Eastman Kodak officially sought Chapter 11 bankruptcy protection early this morning, citing years of falling sales and a deterioration in its film business as the reason for its failure. The company has obtained a $950 million bridge loan from Citigroup (NYSE: C ) to run its operations during its restructuring period.
Today's filing seemed inevitable to many, including myself. I've maintained a CAPScall of underperform on Kodak for quite some time, and while today's actions are bittersweet, it's the right move by management. Questions still remain, though, as to whether Kodak can, even after restructuring its debts and adapting its business strategy, keep up with its larger foes or if it will, like many others of late, wind up right back in bankruptcy court in a few years' time. Here are a few questions that have to be on everyone's minds.
Will Antonio Perez keep his job as the head of Eastman Kodak?
Personally, I think shareholders should have shown up with pitchforks years ago and ousted the stubborn leader of this once-proud company. Under Perez's leadership (though I deign to call it that) Kodak lost money in all but two years, and fiscal 2011 was on pace to become the sixth consecutive year of revenue declines. Perez pigheadedly drove Kodak into the printing business, alluding back to his days as corporate vice president at Hewlett-Packard (NYSE: HPQ ) , and attempted to defeat Hewlett at its own low-margin, highly competitive game. Needless to say, it failed.
Can Kodak compete on price?
I'm not even sure that Kodak can reasonably make enough of a profit on its cameras to make a dent in its debt even after it's restructured. It's clearly too early to speculate on what a debt restructuring will entail, but the heavily commoditized pricing of Kodak's digital technologies will make it increasingly difficult for the company to turn any sort of profit.
Will it sell any of its digital imaging patents?
I think this is on everyone's mind right now and it'll remain the hot-button issue throughout Kodak's bankruptcy proceedings. In October, Kodak agreed to license 50 of its imaging patents to IMAX (Nasdaq: IMAX ) for a $10 million upfront payment and possible royalties of up to $50 million over time. This is, however, just a teaser -- Kodak's 1,100-plus patents could be worth well over $1 billion. Now that Kodak has sought the protection of bankruptcy, I wouldn't be surprised to see cash-rich Microsoft (Nasdaq: MSFT ) or revenue-hungry Sony step up to the plate and attempt to make a bid for some of Kodak's patent portfolio.
Will the current shares be worth anything?
This is the only answer I can give you with near certainty -- NO! There is rarely any value left for common shareholders during bankruptcy proceedings, and I don't see Kodak as being an exception to this rule. As of its most recently reported results, Kodak boasted $900 million in cash and $1.57 billion in debt, leaving the company decisively negative in the shareholder equity column and wiping out any chance for the common shareholder to get any value for his or her shares.
What to do now
Now is the time to watch and wait to see what Kodak will do to come back as a leaner form of itself and attempt to regain at least some of its old glory. If you are a shareholder I see no reason to continue to hold your shares, and if you're an outsider looking in, keep your money far, far away from Kodak shares. I suspect they will soon be delisted, and are what I would deem worthless.
Do you have an old Kodak memory you'd like to share? Post it or any other thoughts you have about this once-great company in the comments section below.
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