The number one take-away from Kodak’s bankruptcy is this:
By not selling the company, management messed up an opportunity to save the company image and protect investors. Kodak failed because management attempted a nearly-impossible recovery rather than a well-timed and strategic exit.
Kodak is one of the most powerful and innovative companies of all time. But after a 74-year tenure as one of the world’s largest companies and included in the Dow Jones Industrials Average (1930-2004), Kodak teetered on the edge of bankruptcy and ultimately fell victim to failure. Kodak not only transformed photography and film, but was also the catalyst that enabled much of the digital age. However, after falling behind for many years, Kodak became a non-competitor in nearly every field of business it was involved; only its printing business showed any promise, and it was not enough to sustain Kodak’s recovery.
Kodak’s recovery was highly unlikely, but management refused to explore better strategies. With patent wars raging in technology, Kodak’s massive portfolio of approximately 11,000 patents is extremely valuable and potentially worth billions of dollars. These patents are not just critical to future developments and revolutionary technologies used in images, print, smartphones, movies, art, computers, web development, and digital devices, but they are tremendously strategic patents for a large technology company to own if it wants to have leverage against its competitors.
Apple (AAPL), Google (GOOG), Amazon (AMZN), Canon (CAJ), Xerox (XRX), Sony (SNE), Microsoft (MSFT), and others could do so much with Kodak’s patents, yet Kodak wasn’t offerings itself as a desirable takeover target with tremendously powerful patents. Kodak’s patents could be worth billions of dollars and could help a company control use of its technology or even hold exclusive rights to it and sell uncontested products. But Kodak didn’t have the resources or the network to use these patents or implement them in growing technologies. Kodak was a failing company just sitting on a gold mine of patents without the proper tools. Instead of selling the company for billions, management attempted a doomed recovery.
On November 2, 2011 I published an open letter to Kodak’s management, CEO Antonio Perez specifically (see Dear Kodak Management: Sell Out Already). In it, I paid my respect to Kodak’s legacy, explained why Kodak’s value is so much greater than people realize, and urged Kodak’s management to sell the company instead of attempting a failing recovery. I gave management five reasons Kodak should sell itself:
(1) Massive Patent Portfolio Wasted. Kodak is just sitting on patents without utilizing them properly. By selling itself, it would free up the patents for much larger companies with the proper resources to put these patents into use. The patents help promote new advancements in technology, but could also be very strategic buys by the larger companies looking for competitive leverage.
(2) Company Not Recovering Fast Enough. Kodak management had long enough to attempt a recovery; it just wasn’t happening. Management had to just accept the fact that Kodak wasn’t making a comeback, and sell the company in order to maximize shareholder value and protect Kodak’s brand name. Why try to recover a $300 million company when you can potentially sell it for $5 billion?
(3) Maximize Shareholder Value. By selling the company, management would maximize the value of the company and protect investors from losing their entire investment. CEOs and management need to protect from bankruptcy, and they didn’t.
(4) Teaming Up Will Revive Kodak Brand. If Kodak sold itself to a larger, much more powerful and far-reaching company like Apple (AAPL) or Google (GOOG), its brand name could have been boosted tremendously. If a large company has Kodak under its wing, it could promote the Kodak name and greatly increase its credibility and brand awareness.
(5) Allow Technology to Advance. By selling itself along with its large patent portfolio, Kodak could have allowed technology to advance at a more rapid pace by offering the larger companies new technologies and intellectual property that could spark new inventions and innovations.
Most importantly, Kodak could have sold itself for $3 billion or more and instead went bankrupt. Though it finally attempted to sell some of its patents, it chose to sell its patents separately instead of in a one-shot deal. By breaking up its patent portfolio, Kodak was greatly decreasing its value and failing to get the largest return from the sale. If Kodak sold all of its patents as one package, it could have attracted large buyers and a higher purchase price. If Kodak sold itself, it could have had tremendous leverage on the sale price by increasing the competitive landscape between the large companies as potential buyers. By showing Apple, Google, Amazon , Canon, and others that the patent portfolio was a huge strategic move for them, it could have created a bidding war that attracted billions of dollars – the accurate price tag for Kodak.
But management failed. I understand what CEO Perez and management were trying to do by attempting a comeback, but shame on them for not truly taking the takeover route. If they sold Kodak to a larger, growing, and more capable company, the Kodak story would have ended in success. However, there is still a huge opportunity for those who can buy Kodak’s assets in bankruptcy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.