So little is left of Eastman Kodak (NYSE: EK), at least in terms of common equity value, that the board should let shareholders do what they can to salvage what remains of their investments. This means the board would have to eliminate the poison pill it has in place to block a takeover of the company. A takeover would be a blessing after years of management bungling.
A firm that calls itself Investment Partners Asset Management has sent the Kodak board a letter. It wants a proposal added to the 2012 Kodak proxy.
The proposal would put to a vote of shareholders a request that the Company’s board of directors (the “Board”) redeem the rights issued pursuant to the Rights Agreement (the “Poison Pill”) the Company announced on August 1, 2011. Under the Poison Pill, if any person or group tries to acquire 4.9 percent or more of Kodak’s outstanding shares, Kodak could issue more shares to dilute such person or group’s ownership.
Kodak put the poison pill in place because its board and CEO cling to a belief that Kodak is worth much more than the sum of its parts. Management has had months to show that the company’s patents and intellectual property are worth more than its market cap of $313 million, plus debt. There have been no major transactions to buy the patents. That says a great deal in a period in which firms like Google (NASDAQ: GOOG) buy other firms like Motorola Mobility (NYSE: MMI) for their intellectual property, and lawsuits among major tech corporations, including Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT), grow by the day.
The signal that Wall St. has sent to Kodak as its shares sell down is that the company’s assets are worth far less than Kodak represents. Kodak now says it is low on money. That is because lenders understand the lack of value as well as investors do. Kodak’s assertions that it has patents worth enough for the board to manage them turns out not to be true.
Kodak’s board should turn the company over to the highest bidder, no matter how foolish that bidder may be.
Douglas A. McIntyre