Eastman Kodak may have had $862m in cash on hand when it last disclosed its financial condition, but that has not stopped one of corporate America’s best-known names from thinking the unthinkable: a possible bankruptcy that would mark a low point in its 123-year history.
It emerged this week that Kodak has begun preparations for a filing under Chapter 11 of the US bankruptcy code, which protects companies from their creditors while they try to reorganise financially.
Though not a foregone conclusion, the contingency planning – including an effort to line up financing from banks to allow it to operate in bankruptcy – suggests that Kodak is close to losing the long fight to remake its film business for the digital era.
It was nearly two decades ago that George Fisher, then chief executive, declared that the company could no longer lean on the film business that had been the foundation of its success, but would need to remake itself for the “information revolution”. Despite pushing into a range of new markets from ink-jet printers to digital cameras, however, revenues have fallen steadily, reaching $7.2bn by 2010 – half the level of five years before, and far below the $20bn Kodak had predicted it would hit by that point.
The company has pegged its ability to stabilise its finances in the short term largely on the sale of its portfolio of more than 1,000 digital photography patents. However, an auction of the patents would be likely to achieve a higher price if Kodak seeks Chapter 11 protection first, said Richard Mikels, a bankruptcy lawyer at Mintz Levin in Boston. That would remove the risk for buyers that a sale could later be challenged by Kodak’s creditors if the company is eventually forced into bankruptcy, he added.
For bankrupt Canadian telecom equipment company Nortel, the sale of a valuable patent portfolio last year was the final step in a complete dismemberment of the company. For Kodak, weighing whether to seek Chapter 11, the risk of a similar fate is now looming large.