Facing big money problems, Eastman Kodak Co. in July 2011 hired a New York City investment bank to help it shop around a huge cache of digital imaging patents. Such a deal, potentially worth billions, did not come to pass in time to prevent Kodak from filing for Chapter 11 bankruptcy on Jan. 19, 2012. But Kodak still is pursuing such a sale and the big potential windfall — which would increase the odds that Kodak’s suppliers could get better than pennies on the dollar for their claims and that shareholders might even receive some returns. And Kodak is seemingly looking to seal a deal by midsummer.
Kodak received U.S. Bankruptcy Court approval last month to hire New York investment bank Lazard Freres & Co. LLC to provide financial and strategic advice relating to a restructuring and an intellectual property sale — Lazard being the same company Kodak hired back in July.
Now Lazard is under some pressure to help turn such a deal around quickly. It stands to pocket millions in fees and bonuses in such a deal. But according to the terms of its contract with Kodak, the IP Sale Transaction Fee it would receive in such a transaction gets sizably cut if a court-approved sale isn’t consummated by June 30 — which is also the U.S. Bankruptcy Court deadline for Kodak submitting proposed bidding procedures for an auction.
What’s for sale is a portfolio of 1,100 patents covering various aspects of capturing, processing, storing, organizing, editing and sharing digital images. And the estimated value of that big stack of patents depends on who you talk to.
An analysis by Michigan intellectual property consulting firm 284 Partners LLC —hired by Kodak — put an estimated value on the patents of $2.2 billion to $2.6 billion.
But an analysis last week by New York intellectual property consulting firm Envision IP Inc. was more conservative — $1.7 billion to $2.6 billion.
And in a Kodak employee Town Hall meeting on Jan. 19, co-President Laura Quatela said Kodak’s own modeling indicated it could rake in $6 billion over the next four years in licensing those imaging patents or potentially more if it inked a deal with one of the warring giants in the smartphone/tablet field, such as Apple Inc. or Google Inc.
Quatela also said that in the days leading up to Jan. 19, Kodak had a pair of unnamed bidders aggressively pursuing its patent portfolio.
Kodak’s filing for Chapter 11 bankruptcy protection might have smoothed the way for an eventual intellectual property deal. “The court-supervised process is intended to maximize value received and provides the opportunity for the winning bidder to purchase the assets ‘free and clear’ of all previous claims,” Kodak spokesman Christopher Veronda said.
According to an affidavit from 284 Partners Managing Director Michael J. Lasinski, the past year has seen such significant digital capture patent deals as Google buying 217 patents from IBM and purchasing Motorola Mobility in part for its patent portfolio; Microsoft licensing Samsung’s patents covering the Android operating system; and Nortel auctioning off its patents for more than $4.5 billion.
Apple seems one likely bidder for the Kodak patents, as a footnote in Kodak’s engagement letter to Lazard spelling out that company’s responsibilities specifically mentions Apple as a potential buyer.
Apple and Kodak have a tangled intellectual property history, with back-and-forth complaints of patent violations, including an Apple claim that it actually owns one of the patents Kodak is trying to sell. U.S. Bankruptcy Judge Allan Gropper last week denied an Apple motion seeking to continue its patent infringement litigation even while Kodak is in Chapter 11. But Gropper also said the complaints need to be resolved.
Under the terms of the $950 million post-bankruptcy-petition borrowing approved last month by U.S. Bankruptcy Court, any money from an IP sale would go first to pay off various financial obligations such as the term and revolving loans making up its post-bankruptcy emergency borrowing. Kodak would be fourth in line for any proceeds.
With the post-bankruptcy borrowing included, Kodak’s total secured and unsecured debts — including various bonds — totals $2.2 billion. And Kodak is not necessarily obliged to pay all that back at once, with more than $1 billion of that debt being notes that come due between 2018 and 2021.
So an intellectual property deal would increase the chance the numerous Kodak suppliers left with unpaid bills could be made whole or closer to whole. Those unsecured creditor claims still are being compiled, but they are in excess of $175 million.
IPEG made a showcase video on how unrealistic the vlauation of the KODAK patent portfolio turned out to be.
This article by Matthew Daneman first appeared in DemocratandChronicle.com.