Photography pioneer Eastman Kodak Co. (EK) announced that its board has adopted a shareholder rights agreement designed to preserve its tax assets. The plan allows Kodak to utilize its $2.9 billion in tax attributes to offset tax burden on future income gains.
The plan is designed to prevent shareholders from increasing their stake in the company for saving the company from higher income tax liability. As per the plan, if any person or group tried to acquire 4.9% or more of Kodak's outstanding shares, the company could issue more shares to dilute its ownership and protect themselves from unwanted takeover. However, shareholders, who already own a 4.9% stake, would not trigger the plan unless they acquire more shares.
The board declared a non-taxable dividend of one preferred share purchase right for each outstanding share of common stock.
Further, the adoption of the plan also reflects the board’s intention of preserving the company’s net operating losses and tax credit carry-forwards, amounting to about $2.9 billion on a pre-tax basis as of Dec. 31, 2010.
The move comes as the company continues to unload some of its most valuable patents as a measure to rebound from its ailing film business. Kodak announced that the plan will help to offset future tax liabilities and serve the future interest of all stockholders by maximizing its ability to explore strategic alternatives related to its patent portfolios.
The company reported second-quarter loss of $179 million triggered by increased raw material costs and industry related sales volume decline. The company, operating in global photographic and graphic communications markets, directly competes with its peers, such as Canon Inc. (CAJ), Sony Corporation (SNE) and FUJIFILM Holdings Corporation (FUJIY.PK).
We currently maintain a long-term Neutral recommendation on the stock. Kodak has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).
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