October 12, 2007 4:32 pm

Hewlett-Packard perennial bid speculation for Kodak resurfacing, industry sources say

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Hewlett-Packard (HP), the listed California-based company, may take a look again at Eastman Kodak in the new LBO environment, industry sources said.

The rationale is that listed HP, now the world’s biggest computer and printer maker, and listed Kodak, the No. 1 maker of cameras and photo equipment, would create a global imaging powerhouse. The move also could strengthen HP in the imaging market, where listed Apple is benefiting from its iPhone for consumers. Kodak already has a 10-year deal to develop camera sensors for mobile phones from listed Motorola.

Hewlett-Packard CEO Mark Hurd has focused largely on software buys since 2005. The largest was the USD 4.5bn bid for listed Mercury Interactive last year, while this week HP closed its USD 235m takeover of listed Neoware of Pennsylvania, a specialist in thin-client systems and software.

Hurd and his managers say their focus is on services, enlarging their software unit and boosting its small profit and keeping up their lead in PCs and servers. But a source who has worked on deals with the company said that if Vyomesh Joshi, EVP for Imaging and Printing, wanted to buy Kodak, based in Rochester, New York, he has sufficient clout.

Joshi’s division accounted for nearly 40% of 3Q operating income and nearly a third of HP revenue. It is one that Hurd left alone when he arrived from listed NCR in 2005. ”If [Joshi] says, ’Go,’ Hurd will do it,” said the source.

Meanwhile, Kodak is trimmer and in better financial shape largely because of steps taken by CEO Antonio Perez, a 25-year H-P veteran recruited in 2003 and CEO since 2005. Perez recently shed Kodak’s low-margin health imaging business for USD 2.35bn to Canadian P/E firm Onex Partners and its smaller light-management film unit to listed Rohm & Haas.

Perez also launched a challenge to H-P in the USD 45bn global printer market. Its EasyShare line, designed for consumers, is priced far above HP’s bestsellers, but uses different technology and inks that Kodak claims reduce cost of ownership. Perez and another HP veteran, EVP Philip Faraci, introduced the printers in January with the goal of carving 10% market share by 2010. Last week, Faraci was named Kodak president.

HP and Kodak representatives declined comment.

Kodak shares have gained 23% in the past year, giving the company a market capitalization of USD 7.84bn and enterprise value of USD 7.52bn.

HP, with a market capitalization of USD 130bn, reported 3Q cash and investments of nearly USD 12.4bn and could finance a Kodak buy, although it has a USD 8bn stock repurchase plan. A far-smaller HP managed the rocky USD 23.7bn purchase of listed Compaq Computer in 2002, although that factored into events leading to CEO Carleton Fiorina losing her job.

Kodak, established in 1888, possesses one of the world’s richest patent collections, a global presence in consumer and industrial markets and has graphic communications products in advanced markets that compete with HP, listed Xerox and others. Despite Perez’s moves into digital products, the company is still losing market share to Japan’s listed Fujifilm Holdings in the film and photo finishing sector.

Kodak previously reported 2Q net income of USD 592m reversing a prior-year loss of USD 282m. Revenue fell 7% to USD 2.51bn.


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