Is Kodak a Takeover Target?

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

Here we go again, another round of takeover speculation surrounding falling star Eastman Kodak ($25.98). This time, though, some market trackers say the possibility is more likely, given the sudden and unexpected stepped-up trading activity in both its shares and options for no apparent reason.


Though trading slightly above its 52-week low of $23.97 and well below its 12-month high of $35.19, the stock and options are said to be attracting some of the “informed buying” crowd, the kind of stock players who have a knack for investing in a company prior to a stock-boosting announcement. Included in this group is said to be a European hedge fund manager who is reported to have made a number of killings on the takeover front.


The latest word on Kodak centers on a possible buyout of the word’s largest maker of photographic film by one of those cash-rich leveraged-buyout funds. Hewlett-Packard is also being bandied about as a possible buyer. A Kodak spokesman said the company doesn’t comment on speculation, and Hewlett-Packard didn’t respond to calls seeking comment.


Pointing to the renewed takeover rumblings, one Goldman Sachs trader believes there could well be merit to speculation of a prospective Kodak buyout this time since, he said, “You’re talking about a company in disarray with plenty of fed-up shareholders, strong cash flow, a stock that’s cheap on earnings, and one of the world’s most recognized brand names.” This trader has a position in the options, which he recently acquired. “I think it’s worth a shot because a Kodak deal makes an awful lot of sense,” he said.


Kodak is a former darling of institutional investors, especially in the ’60s when it dazzled Wall Street as one of the “Nifty 50” growth stocks. Once traded as high as $94.75, the company later fell on hard times due to sharply declining camera and film sales, which, in turn, led to shrinking profitability and a plummeting stock price.


In an effort to turn itself around, Kodak is focusing more on digital cameras and imaging technology and has gone on a major cost-cutting kick, resulting in substantial layoffs. New product introductions call for entry into ink-jet printers and flat-panel displays, areas that would fit well with Hewlett-Packard’s line of computers and associated product lines.


Estimates call for Kodak – which posted 2004 sales of $13.5 billion – to earn $1.87 a share this year and $2.31 in 2006.


In a takeover, Kodak, according to estimates from investment banking sources, could fetch between $33 and $35 a share, equivalent to roughly $26.5 billion.


Meanwhile, one short-seller (a bettor on falling stock prices) doubts the buyout speculation is real. “Sure, Kodak is a great name,” he said, “but right now its future is a big maybe, which tells me it’s still a better short than a long.”


***


WATCH OUT, IT’S SEPTEMBER: “Say Dan,” Brett Eggert e-mails me, “tell me about September. My wife and I have $13,000 in the market. We heard on the radio it’s a lousy month for stocks and we’re debating whether we should sell. Could you please give us some insight on the matter so we can make an intelligent decision.”


Brett, your comment on September is right on. So is your concern, yesterday’s nearly 142-point rise in the Dow notwithstanding. Not only is September a dog, but it’s traditionally the doggiest month of the year and one that literally cries out for caution. In fact, according to a Standard & Poor’s analysis, September is the only month that has shown an average decline over the past 25 years.


The figures tell the story. The declines, by and large, are not necessarily killers, but on a half-dozen occasions, losses for the month did exceed 5%. Overall, since 1928, September has shown an average 1.3% decline in the S&P 500. More recently, since 1980, the month has averaged a 1.2% decline.


Why September is such a bummer is anybody’s guess. I asked a number of Wall Streeters, but none could give me what I thought was a credible answer. Some thought the trend would likely remain in force this year, given $70 a barrel oil, the economic and psychological impact of Hurricane Katrina, higher prices at the gas pump, and ongoing worries about rising interest rates.


Interestingly, since the start of 1980, there have been 26 months in which the S&P 500 fell more than 5%.You guessed it. The most such declines – six – occurred in September, followed by five in August. No other month had more than two declines of that magnitude.


September also boasts the third worst monthly slide since 1980, an 11% drop in 2002 when the Internet bubble unraveled. Only the October 1987 crash of 22.7%, a period of dollar woes, and the 14.6% drubbing in August 1997 during the Asian currency crisis were worse.


Last September, the declining trend was interrupted as the S&P 500 rose 1%. But true to form, the preceding five Septembers were all down months.


In his poem “The Waste Land,” T.S. Eliot wrote the memorable line, “April is the cruellest month.” Investors who have been beaten up in September might well take issue with that.


The New York Sun

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