Ten years ago, if someone would have told me Eastman Kodak (EK) would be on the verge of bankruptcy, I would have called them crazy. However, bankruptcy could eventually be a possibility for Kodak now. The company is losing hundreds of millions of dollars each year. It has a growing debt-load. The interest on its debt alone is around a $150 million each year. This is a lot for a company with a market cap of only $780 million.
Kodak has had a tough time with innovation. The company is losing customers and its brand name is dying. Even though Kodak is dying, the company does have a strong name regardless. John Ford, a SeekingAlpha, writer has actually made some very good points about Kodak. He believes that the patent portfolio may be worth a $1 billion. I recommend you read his article on Kodak's patent portfolio here.
The estimate of $1 billion for its branding maybe a little too high. Don't forget that with Kodak falling behind in market share, its brand has fallen as well. I believe that as Kodak's losses increase, the value of its patent portfolio will be much less.
The market is giving the company a $750 million valuation. The company lost almost $700 million in the year of 2010. I believe if the market does believe that there is any value to the patents then it is already being priced in.
Kodak's CEO Antonio Perez said there is interest among companies. He has not publicly disclosed the companies, but there are rumors that brands such as Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) are potential bidders. I honestly do not believe Apple would acquire a company like Kodak, as Apple does not really need its patents. Google might be a reasonable player and could overpay, but the company has been more focused on the smartphone market patents than anything else. Microsoft has also been focusing on smartphone patents as well.
There are reports that the patents could fetch around $3 billion, but I disagree. These big name techs will not pay $3 billion for patents of a dying company. If anything, they would wait until Kodak realized that they would HAVE to sell its patents. These big name techs already have strong exposure to the digital imaging market. Even if Kodak is able to sell the 1100 patents it has for a nice sum of cash, there is still a strong chance the company would still suffer.
With a $1.5 billion debt-load and loss of customers, I am not sure even a patent sale can save the company or increase value for shareholders. Obviously the market believes the potential M&A activity of its patent portfolio may be a non-event.
Disclosure: I am long MSFT.