Help me buy Kodak's film division

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vdonovan

Vince Donovan
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Discontinuing 320 TXP in 220? That was the last straw. I crunched some numbers and have figured out that not only can we fix the situation ourselves, we can become rich in the process.

Kodak's film division really SHOULD be sold or spun off as a separate company. While film is indeed profitable for Kodak, it is now and always will be a small part of their business. In fact, it is dragging Kodak down. While film is 22% of Kodak's sales, it delivers only 12% of Kodak's profits.
Kodak digital has a gross margin of over 30%, while film is only 10%. Without the film division, Kodak's overall gross margin would almost double.

The profitability of film is unlikely to increase since they have already wrung every possible efficiency from that operation. Kodak would be wiser to invest in their digital division, which is now returning a big profit and growing quickly.

So film is a turkey as part of Kodak, but if it was an independent company it would be quite attractive: $2 billion in global sales with a gross margin of almost 10%. Kodak reports "sequentially improved demand across all traditional businesses". So with absolutely no marketing and terrible distribution, film is cranking out $200 million in cash every year and growing. I think with good marketing (a la Lomography) the film business could double over the next ten years.

So here's the pitch: 50 Rangefinder Forum members (perhaps together with some of the maniacs over at APUG) get together to perform a leveraged buyout of the company. We offer Kodak $2 billion, or about 10 years worth of profits. Kodak gets a bump to the balance sheet and an instant improvement to their gross margins.

The $2 billion is financed by a 10 year note at 15% interest. The payments on the note are about $100 million per year, which we pay out of the film division's annual cash flow. We then use $50 million of the remaining annual cash for new sales and marketing. The remaining $50 million per year we distribute to ourselves, the original 50 investors, for administrative expenses.

As rapacious as this plan sounds, I bet it really would grow the company. $50 million is a LOT of marketing, probably ten times what Kodak is doing now. I honestly think film sales could double over ten years--look how much Lomography has grown: they are a roughly $1 billion company now, and they must keep selling cameras to people who already have them. Film customers just keep on consuming.

Of course once film sales and profits double, we investors would be able to double our administrative compensation to $2 million per investor per year.

Who's in?
 
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...film is cranking out $200 million in cash every year and growing. I think with good marketing (a la Lomography) the film business could double over the next ten years.

So here's the pitch: 50 Rangefinder Forum members (perhaps together with some of the maniacs over at APUG) get together to perform a leveraged buyout of the company. We offer Kodak $10 billion ...
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There's a typo here. Five years of profit amounts to $ 1 billion, not $ 10 billion.

Even then, I think I'm kinda short on kidneys, even though it sounds like a valid business plan :D
 
CLE-RF said:
There's a typo here. Five years of profit amounts to $ 1 billion, not $ 10 billion.

Even then, I think I'm kinda short on kidneys, even though it sounds like a valid business plan :D
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Whoa! Thanks for the correction. That makes the deal even sweeter. We offer $2 billion, and pay if off in ten years, which means when we pay off the note after ten years each original investor gets an extra $2 million per year in administrative compensation. I've edited my original posting to fix the error you found.
 
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hell, seems to work for all of the private equity companies that have run our country into the ground. might as well join in the fun :D of course we'd actually want the company we're buying to succeed long term. that would probably be a turn off to some investors.
 
vdonovan said:
While film is indeed profitable for Kodak ... In fact, it is dragging Kodak down.
Click to expand...

I'm gonna go sit and meditate, empty my mind ... cuz if I try to get my head around THAT, I'll be as bonkers as the geniuses that thought up sub-prime mortgages.

Are you a (out-of-work) merchant banker? I got a spare room in Rochester where you can crash while you go pitch this on State Street. When you come back in the evening, my night's entertainment will be set. I'll even open up a really nice single malt for you. You'll need it. ... :p :D
 
You are banking on the fact that interest in film will continue at its current rate, if not grow. As depressing as it sounds, I don't believe (even with all the marketing in the world) that interest in film will do anything but slowly fall off the map... And just wait until generation-film is no longer around to purchase film.

Edit: However, I am all about it.
 
It would be difficult to sell Kodak film without the name, at least initially and until the new name is branded and recognized. This could take some time though. I can't see Kodak allowing its name to be used (even for marketing) without paying a handsome sum.

I do think it is a great idea however.

What about scanners? Doesn't scanning and film go hand in hand for most of us?
 
This wouldn't be such a wild idea 4 years ago. The purchase price would be higher, but you could get the debt. (Although you would need *some* equity regardless, and I doubt your 50 RFF members would be available to pony up $1-2 million each.) Unfortunately, even the best deals these days aren't getting funded because there's no debt to be had, particularly for highly-leveraged transactions.

Now, assuming you have access to funding, your biggest issue is demonstrating to investors and the banks that you can *grow* the business or massively reduce costs, because your purchase price is going to be based somewhat on what Kodak thinks they can do with the business on their own. If you can't wring any additional value out of it, your purchase price plus your debt costs will leave you with nothing. The whole point of an LBO is to get something more out of the business that the current owners otherwise can't.

So...got any brilliant ideas to keep people using film *and* find new consumers for it? If so, you can purchase their film division on today's current metrics, and become wildly rich when you show everyone that they were underutilizing their own asset. Worst case scenario is that you're wrong, and the bank takes over your film operation when you default on the debt. Then you've got a bunch of people running the place who could really care less about film...if you're lucky, Kodak buys it back.
 
Why did Kodak have both 320 and 400 Tri-X films? That's only 1/3 stop of difference! It sounds like one of those films was bordering on being redundant.
 
You can laugh, but he has a good idea. Someone will do it, and we will all have forgotten about this thread, and then we will say, 'Why didn't I think of that.' Buffet, Pickens, Perot all didn't get where they are by not crunching the numbers.
 
Isn't Kodak already basically owned by a private equity firm? That will finish them off for sure. Maybe spinning off divisions will come in the process. Good luck!
 
I don't know about buying Kodak, but I was kind of looking forward to trying TXP at iso 6400 in acufine which is supposed to work surprisingly well. Oh well. I could be tarred and feathered, but don't the current tmx and tmy-2 films have a similar curve and overall look depending on developer? They certainly took that way to me.
 
Who here has the real world experience to actually run a company that large? As implied above, without the Kodak name you stand a chance of going under very rapidly. And your premise of doubling sales in a few years flies in the face of reality. The most recognizable name in film has suffered 15% to 20% losses yearly for a dozen years.
I wish you luck but if the film division was tro be sold it would most likely go to Fuji.

Steve
 
Interesting scenario to present to a lender.

"Kodak is unloading their film division because film sales are dropping like a rock. I want you to lend me a few billion so I can but that division."

Yeah, that'll work. ;)
 
I'm in Asia at the moment, so I'll look into making Holga/Diana type cameras to boost your business. Funny thing is I see more women using Holgas than men, and they say there are more women than men over here. So, you'll have plenty of customers for the foreseeable future. ;)
 
A hundred years from now archeologists are going to discover millions of fuzzy, badly exposed, funny colored photos in China and spend years trying to figure out what the people at the beginning of the 21st century were thinking! ;)

Kids will be wondering why their grandparents were such awful photographers.
 
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