Kodak has reached a deal to turn its legacy personalized and document imaging businesses over to its largest creditor in return for wiping out pension obligations in the UK.
The agreement with UK Kodak Pension Plan (KPP) involves the sale of the imaging businesses for $650 million, and the settlement of nearly $3 billion of claims by KPP against Kodak and some of its affiliates.
This deal will pave the way for the one-time photography giant to emerge from Chapter 11 bankruptcy as a commercial imaging business.
“This clears the way for our filing of our plan of reorganization, something we intend to do tomorrow [April 30]. And then we will seek approval from our creditors,” says Kodak spokesperson Chris Veronda.
“Our agreement with creditors is that we would achieve a value of $600 million for the sale of the businesses. So with a total value of $650 million we do meet that threshold.”
The agreement stipulates the handover of Kodak’s imaging businesses to UK pensioners. KPP will then be able to run the businesses or sell them as they determine.
Veronda says KPP has indicated a desire to keep the businesses in order to garner long-term cash flows to support members.
Nothing to worry about for US employees
“KPP has indicated that they see these businesses as key elements of their long term strategy to serve their plan participants.”
He adds that US-based employees have no reason to worry.
“KPP has indicated that they clearly recognize the value of those teams that built the businesses and want to keep the employee teams in place.”
Analyst George Conboy 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.”
Conboy says he doesn’t expect to see any more hurdles between the company and their emergence as a commercial imaging business.
He says this deal is the last piece of the puzzle.
“This is a big step, and really the final step before Kodak seeks court approval to emerge from bankruptcy. There were two major hurdles to be overcome; the disposition of the document imaging and personalized imaging businesses, and the resolution of the UK pensions. This step combines those two hurdles and gets them done at once and leaves Kodak ready to emerge from chapter 11.”
Conboy says, although the deal may seem convoluted, it can be likened to a simple analogy.
“It’s a bit like, Kodak owes the retirees money but doesn’t have the cash, but they have a brand new car. And they say to the UK pension fund, ‘look, we don’t have the cash, how about in exchange for the debt we owe you we’ll give you our new car and you give us a couple of thousand bucks in cash.’ The retirees could then say well, ‘we need a car anyway, we’ll drive this car,’ or they can put the car on the market and they can sell it for what they can get.”
“The question is, once the retirees get this car are they going to drive it or are they going to list it for sale? And it looks for the moment like they’re going to drive that car.”
Earlier this month Kodak struck up a tentative deal with Brother Industries for the sale of the document imaging business alone for $210 million.
Kodak’s Chris Veronda says that agreement allowed Kodak a period of time to test the water for a better offer, and this new deal will supersede the arrangement with Brother.
“[In] the prior agreement it was clearly noted that Kodak would have a marketing period to continue to seek a higher, or better offer. With this agreement we have filed a motion to withdraw the prior motion. We have communicated with Brother and have notified them that this new deal that is higher and better is in place.”
Veronda says this deal settles the company’s largest legacy liability in their chapter 11 proceedings.
“It’s great news for Kodak, and it’s great news for the customers and employees of these businesses.”