Kodak's Ready for Another IPO, but Are Investors?

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After entering bankruptcy protection in 2009, Eastman Kodak is ready to reintroduce itself to the public markets, and pay off various levels of credit holders who have patiently waited for the company to drum up some cash. It's been a long, painful process, but management has successfully sold off assets -- from digital imaging patents to its document and personal imaging business. The question is, with hundreds of millions worth of assets sold off, what will the remaining company be left with, and should investors consider a position in Kodak 2.0? Let's take a closer look.

The new, slimmer Kodak
When Kodak hits the equity markets near the end of the year, it will be a far cry from your parents' snapshot developer. The operating Kodak will be mainly a commercial imaging company, along with packaging and enterprise printing solutions.

The company sold over 1,000 digital imaging patents for $525 million (which was less than expected) to a group of investors, but retains the rights to use the technologies in future products. While it may not be as big of an upfront payment as creditors may have desired, the remaining access could prove to be very valuable down the line.

At least some of the issues that brought Kodak down will no longer be relevant to prospective investors. The company was burdened with mounting pension payments that it simply could not meet -- an issue not resolved until the latest round of asset sales. Poor financial management left the company with very little resources to improve the business. The more obvious, public reason for Kodak's failure was the inability to adapt to technological change in the industry -- that is, embracing digital imaging trends. Kodak will come back to us a company that once again focuses on a fast-growing sector: commercial printing and solutions. But has management learned its lesson that the imaging business is highly dependent on technological innovation?

What to expect
The market in general may neglect the Kodak IPO for a few reasons. For one, the name Kodak has a bad connotation to it these days, as people have it mind as a head-in-the-sand player, like Polaroid.

The offering's proceeds will pay off junior creditors who will not be awarded equity positions in the new company. This may, again, discourage prospective investors who want to see money go to the operating company. While I would normally agree that with that, in this special situation, the company needs to pay its creditors as soon as possible.

Though in a high-growth space, the company will face fierce competition from the gorillas in the industry. Competitors like Canon (NYSE: CAJ  ) were quick to embrace digital technologies and by now are seasoned veterans. Canon has many divisions it can lean on if one -- say, commercial printing -- becomes sluggish. Kodak, to a degree, will not have these luxuries. As for investors, Canon is a mega cap with a chunky 4.7% dividend that is likely the more risk-averse pick. The stock may be down more than 18% over the last 12 months, but there are signs of improvement on the horizon.

Canon recently signed a more-than-$110 million contract with the Department of Defense, and as fello Fool Rich Smith notes, this could be just a fraction of the contracts coming Canon's way. Another advantage Canon will hold over Kodak: a beautiful balance sheet, with current assets handily covering total liabilities. 

But just because there are other attractive companies in the space doesn't mean that Kodak will be a bad stock to own. Investors should closely examine the S-1 filing (offering documents) when it becomes available to get an understanding of what this new iteration of Kodak really is, and more importantly, what it's worth. It's too early to say get behind the stock (or not), but this may be a special situation worth watching.

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