I was the marketing director for two bank holding companies that bought a lot of local banks so I know a bit about M&A. I am also a photographer which in my case means a significant part of my business brain has been fogged by too much time breathing fixer in a poorly ventilated dark rooms
😀. Here's my .02 worth:
1. Kodak probably makes more on the film division than stated even though as has been very accurately noted, it is becoming less significant each year. If a business division is not growing fast enough to offset increased operation costs, then bascially it is dying. It WILL cost more and more to make film each year (amazing how costs rarely drop) so the profit margin will drop.
2. "the point I wanted to make is that Kodak's film division (which I have renamed in my head Kodak Fine Arts) makes $200 million per year in cold hard cash even in hard times. That number is no longer shrinking, but actually growing." Do not believe for one second that their film division is growing at any significant level. Kodak would probably love for someone to buy their film division and the last line of that quote is typical "annual report rubbish." Of course they will broadly state that "all divisions are growing" and they may be factually correct. But a 1% growth rate does not cover the increased cost of annual operations so the margins will continue to drop
(I have not looked at Kodak numbers but I assume that film division USED to have margins much higher than 10% - they had to have in order to keep the division around this long.)
3. Debt - there is no way to get any and even if you could, you would be laughed out of every commercial bank lending office in the country. Bankers know immediately if a "deal" will work and study the numbers only when a deal looks good. Unless you can claim this is part of Obama's stimulus package, forget any debt for the Kodak film division. No lending institution is risking their capital and raising their loan reserves on this puppy.
4 A). Spin off the film division - might work, might make this division more "saleable" but then the numbers as a stand alone company become more revealing - how high were profit margins, how much are operating costs increasing every year?
4 B) . Stock swap - perhaps the only way something like this can ever be done is through a stock swap with no capital involved. This is the way many M&As are done with the buying company "paying" for the purchase with their company stock." There are exceptions of course and this is a "small" transaction in business terms these days. But with "film" being relegated to a very "nich" product for the masses, any company exploring the purchase of the Kodak film division better have a lot of unissued stock. The beauty of a stock swap is there are no tax consequences for the seller (at least there were not back in my M&A days, I understand the laws may have changed). And stock swaps do dilute the buyers stock a bit, but typically the price for the transaction is a pretty accurate reflection of what a company is worth ("goodwill" aside of course
😀)
5. Desperate RFFers aside (and I am assuming there is no one here who has assets in the 10-15 BILLION dollar range, which is probably what it would take to pull off a leveraged buyout of even this small film division), who would seriously consider buying the Kodak film division? Sure someone like Warren Buffet and his Berkshire Hathaway company might take a look at the numbers but I doubt they stop laughing for a while when they looked at the growth and profit of the Kodak DIGITAL division(s). That is where the growth and increased profit margins lie. I
am positive that all RFFers know this fundamental business ideal: the growth to offset increasing operational costs and expand profit margins can only be found in (at least in a business like Kodak's) through growing markets - not a market that is steady or perhaps dropping from a "marketability" view point.
6. I still have not answered the question - who would buy the Kodak film division? Sure, a film freak who invested in Microsoft thirty years ago could probably buy it in a heartbeat - but this seems very unlikely. What about another film company? Are there any photography companies large enough to buy Kodak and if so, willing to do it? And would the Kodak film product line change if a competing company bought it? Hard to say and again, it seems unlikely that a company that competes with Kodak film would be willing to buy it .
7) The fact is, other than the users of film, I am sorry to say there is very little business incentive for any company to purchase this division. The very best thing for the Kodak film division COULD be for it to remain a small, profitable division that can hold its own until it reaches a point where a company already in the photography business can afford it. The risk is, as has been expressed by Kodak and many earlier posts on this thread, those kinds of divisions are not well liked at the corporate level these days. On the other hand, what if the Kodak film division was eliminated? Would that strengthen the sales of competeing film companies?
8) I know many of you use film and would rather die than use digital imaging, but you know you are a very small part of the photography landscape these days. I am not an economist or business prognosticator but I think the end of Kodachrome is typical of what the future holds for film. K64 was my media back in my professional photography days and while I had a very strong emotional reaction to its demise, I can certainly understand the business decision behind it. Unfortunately in today's business world, it is all about the "business decision."
9) I hope I am wrong and someone announces the purchase of the film division within five minutes of posting this. Maybe someone here needs to talk to the guy from Virgin Aiirways
😀? Good luck "filmers."
Well now I know what it would be like to sit in a conference room at Goldman Sachs and pitch a junk bond deal! It's true, though, that the days of the zero-equity leveraged buyout are probably dead. Thank you all for digging into my semi-serious proposal.
There were indeed a few errors in my numbers, but the point I wanted to make is that Kodak's film division (which I have renamed in my head Kodak Fine Arts) makes $200 million per year in cold hard cash even in hard times. That number is no longer shrinking, but actually growing.
The other point I wanted to make is that the film business, though profitable, is not so valuable to Kodak Corporation because the gross margin is less than their digital business and unlikely to increase. Film is dragging down Kodak's overall gross margin. So they are unlikely to try to grow the business. They will just keep cutting and cutting.
So Kodak's not excited about $200 million profit per year at a 10% gross margin. But someone else might be. Warren Buffett owns a cowboy boot manufacturer, for heaven's sake, because it makes a tidy profit year in and year out. Hopefully Kodak film won't be bought by a shyster like Tom Petters who bought what was left of Polaroid and milked it dry, selling off the assets instead of trying to grow the company.
I sincerely believe that with proper investment in marketing and distribution the consumer film business could double, though not grow much more than that. Look at what Lomography has done: they are selling close to a billion dollars worth of over- priced crappy plastic cameras world wide. They did this entirely with marketing. I went into an art supply store the other day and was surprised to see a big line of Holga cameras for sale BUT NO FILM! Not one roll! Lomo also famously sells their product in clothing stores, but again you won't see film on sale. I think there are opportunities out there, not big ones, but enough to keep the brand alive.
Lomography is, in fact, getting into the film business with The Impossible Project, their re-start of Polaroid's SX-70 film factory. You can bet they'll be launching their new film in the hippest shops on the street, while Kodak continues to cut product lines.
Thanks again for all of your comments.
