Eastman Kodak (EK)fell sharply Thursday after a financing deal that it pitched as avote of confidence in its business model dashed recent hopes for a takeout of the ailingimaging products company.
Shares of Kodak climbed above $6 a share earlier thisweek, reaching an eight-month high during the rise, on a big bulge in trading volume in recent sessions. Over the previous five trading sessions, average volume in Kodak reached 12 million shares a day – including a spike to 14 million shares Friday – or nearly twice the daily average trading volume in the stock.
Far from announcing a purchase by either a strategic buyer, which always seemed fairly remote, or a financial purchaser, Kodak late Wednesday struck a deal with investors led by Kohlberg Kravis Roberts to pump up to $700 million into the company.
That deal includes provisions for$300 million in convertible bonds, expected by analysts to be priced today, that could end up diluting current shareholders bysome 30% to 40%, according to Brean Murray. Meanwhile, the $400 million in senior secured notes that would make up the balance of the investment could end up costing Kodak up to 20 cents a share in additional interest expense, Deutsche Bank suggested.
That’s quite a hit for a deal that Kodak has pitched as a move to strengthen its balance sheet.
Further hurting the prospects for the company, Kodak also delivered a forecast of negativeSeptember-quarter operating results. Its full-year guidance suggested that it would need to generate $350 million in operating income in its December-ending quarter, Brean said,a level that Kodak hasn’t realized since the early part of this decade. Brean Murray reiterated its ”sell” rating on Kodak.
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