"Kodachrome
You give us those nice bright colors
You give us the greens of summers
Makes you think all the world's a sunny day, oh yeah!"
-- "Kodachrome" by Paul Simon
Eastman Kodak (NYSE: EK) was once the most powerful brand in film and cameras. The best things in life were Kodak Moments, and Paul Simon waxed poetic about the brand's flagship film. Life was good.
Those sunny days are over. Unable to compete in the new world of film-less digital cameras, Kodak is desperately clinging to life. The company has an ugly habit of burning cash rather than making it, and the stock's market value has followed suit:
Eastman Kodak Market Cap Chart by YCharts
And the sad story doesn't end there. Last night, Kodak got the dreaded delisting notice from the NYSE. The stock has traded below the $1.00 minimum share price for more than 30 days, and the Big Board doesn't want to trade penny stocks. If the company can't get its share-price act together in the next six months, it could get booted off the board. Appeals might extend that deadline, but not forever.
One quick fix in situations like this is the reverse split move. It sounds like a painful gymnastic maneuver, but it's actually a totally academic rebalancing of share counts and values. Do a 1-for-10 reverse split and you'd immediately get 10 times the share price on one-tenth as many shares. Market caps don't change, nor does the value of your holdings.
But we hate reverse splits!
Yet, perennial penny-land denizens don't like to go there. Take Sirius XM Radio (Nasdaq: SIRI), for example. Whenever the satellite radio giant's share price dips below $1, CEO Mel Karmazin shouts that he'd rather cure the listing problem "organically" rather than wave the white flag of reverse-split defeat. It's a matter of pride.
Some investors assume that management has given up when this move rears its unwelcome head. As an example of the market effects in play, you could point to Citigroup (NYSE: C) doing a tenfold reverse split in May and then underperforming the market. Then again, that's more a result of Citigroup's continued terrible execution -- a few large banks have done even worse without resorting to extreme share-count measures.
Well, Kodak has other reasons not to go down this unpopular road. This is from the delisting notice announcement:
Notwithstanding the opportunity for a six-month grace period to return to compliance with NYSE continued listing requirements, given the liquidity challenges confronting the Company and the recent market experience with our listed securities, there can be no assurance that the Company will return to compliance with the NYSE listing standards. Moreover, no assurance can be given that future actions by the Company or the marketplace will not give rise to alternative bases for potential delisting from the NYSE.
The Kodak moment has passed
This company really did give up already. Kodak is frantically looking for a buyer of its extensive patents in digital imaging. CEO Antonio Perez says that about 10% of the patent portfolio is on the table, and he is "very pleased" with the level of interest in this asset sale. But he wouldn't commit to a timeline or a dollar value.
And if he finds a buyer, he'll basically sell the digital-era assets he'd need in order to run a viable business. Call these patents "non-core" all you want, Antonio -- I think you're wrong. It's like Frank McCourt's family first breaking down the furniture and then the very apartment walls as firewood in Angela's Ashes. How much more desperate can you get?
Investors clearly saw this delisting notice coming; shares dropped just a penny on the news. Or, you know, about 1.5%.
This once-proud stock is inevitably sliding toward the edge of oblivion. At long last, Mama is taking the Kodachrome away. I just placed a thumbs-down CAPScall on Kodak, because I don't see how the company can recover.
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Editor's Note: A previous version of this article listed Nasdaq’s minimum listing level at $2 a share rather than $1 a share. We regret the error.
