By Dana Mattioli, Mike Spector and Ashby Jones
Eastman Kodak Co.'s (EKDKQ) patent auction in New York has
failed to generate the premium bids that the company and creditors
had hoped for, with some suitors leaving the action in the past few
days, people familiar with the matter said.
All the bids received for Kodak's portfolio of 1,100 digital
patents thus far were significantly below $500 million, as
consortiums that include Apple Inc. (AAPL) and Google Inc. (GOOG)
declined to engage in the sort of spirited bidding that drove up
prices in an auction of Nortel Networks (NRTLQ) patents a year ago,
the people said.
The sale continues through the weekend with Kodak and bidders
communicating by phone and the result hard to predict, the people
said. But the low initial bids and apparent absence of a bidding
war suggest Kodak will likely face difficulty collecting enough to
repay creditors fully and emerge from Chapter 11 as it had
originally planned.
"Our patent auction is a complex and dynamic process, and is
very much ongoing," a Kodak spokesman said. "We and all
participants are still bound by the Court Order on confidentiality
and cannot comment prior to an outcome."
People involved in the auction described a complicated process
with extra secrecy, unusual procedures and a range of different
offers. Under the schedule set before the auction began, the
company was to select winning bids by Monday.
Kodak needs a good result from the auction to pay off its many
creditors. Proceeds must first be used to repay banks including
Citigroup Inc. that provided Kodak with a $950 million bankruptcy
loan. At the end of June, Kodak held $1.3 billion in cash, but the
company continues to lose money, with its net loss for the first
six months deepening to $665 million from $425 million a year
earlier.
It couldn't be learned where prices stood on Friday. The offers
became increasingly complex as the auction progressed, the people
familiar with the matter said. Kodak preferred bids on the entire
portfolio, but offers soon started coming in all different shapes
and sizes, one of the people said.
Kodak had valued the patents at between $2.2 billion and $2.6
billion.
The auction got under way on Wednesday at several New York law
firms, including Sullivan & Cromwell LLP. Bidding consortiums
pit Silicon Valley giants Apple and Google against each other and
against private-equity firm Vector Capital Corp., people familiar
with the matter said. All have since left Manhattan, some heading
back to their West Coast headquarters, the people said.
Kodak was selling the patents in two lots: one portfolio related
to capturing and processing images on cameras, smartphones and
tablets; and another tied to storing and analyzing images. Bidders
have put more value on the first group, dubbed the "digital
capture" portfolio.
The increasingly complex auction marks the latest setback in
Kodak's efforts to sell the patents and raise cash to fund a plan
to transform Kodak into a company that makes consumer and
commercial printers.
Kodak couldn't find takers for the patents during a sales effort
last year amid fears any transactions could be undone in bankruptcy
proceedings. Its sale also suffered a setback in July, when the
International Trade Commission invalidated Kodak's most lucrative
patent in a case brought against Apple and BlackBerry maker
Research In Motion Ltd. (RIMM). Initial bids for the patents last
week were between $150 million and $250 million. Kodak has drawn
$700 million under its bankruptcy loan and issued $114 million in
letters of credit under the facility, according to the most recent
regulatory filings.
In the auction, Apple has teamed up with Microsoft Corp. (MSFT)
and patent aggregation firm Intellectual Ventures Management LLC,
people familiar with the matter said. Google's consortium includes
patent aggregation firm RPX Corp. and three hardware companies that
make phones based on Google's Android operating system: Samsung
Electronics Co., LG Electronics Inc. and HTC Corp. Vector, the
private equity firm, also joined the fray.
-Write to Dana Mattioli at dana.mattioli@wsj.com, Mike Spector
at mike.spector@wsj.com and Ashby Jones at ashby.jones@wsj.com
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